|
|
|
|

SECURITIES
  AND EXCHANGE COMMISSIONWashington, D.C. 20549



FORM 20-F

| | REGISTRATION STATEMENT PURSUANT TO SECTION
      12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934                                      
| | ------------------------------------------------------------------------------------------------------------------------------------------
| | or                                                                                                                                        
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED OCTOBER
      1, 2005
| | or                                                                                                                                        
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR
      15(d) OF THE SECURITIES EXCHANGE ACT OF 1934                                            
| | or                                                                                                                                        
| | SHELL COMPANY REPORT PURSUANT TO SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.                                        

Commission file number: 001-31653

MITCHELLS & BUTLERS PLC(Exact name of Registrant as specified
  in its charter)

England and Wales(Jurisdiction of incorporation or
  organization)

27 Fleet StreetBirmingham B3 1JP
England (Address of principal executive
offices)

Securities registered or to
  be registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:None

Securities registered or to be
      registered pursuant to Section 12(g) of the Act: Ordinary Shares of 7 1/12p
    each


Securities for which there is a
    reporting obligation pursuant to Section 15(d) of the Act: None


Indicate the number
        of outstanding shares of each of the issuers classes of capital
  or common stock as of the close of the period covered by the annual report:


Ordinary Shares of 7 1/12p each500,438,040

Indicate by check mark if the
    registrant is a well-known seasoned issuer, as defined in Rule 405 of the
    Securities Act.


Yes         No

If this report is an annual or
      transition report, indicate by check mark if the registrant is not required
      to file
    reports pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934.


Yes          No

Indicate by check mark whether the
    registrant (1) has filed all reports required to be filed by Section 13 or
    15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
    (or for such shorter period that the Registrant was required to file such
    reports) and (2) has been subject to such filing requirements for the past
    90 days:


Yes         No

Indicate by check mark whether
       the registrant is a large accelerated filer, an accelerated filer, or
      a non-accelerated filer. See
      definition of accelerated filer and large accelerated filer in
       Rule 12b-2 of the Exchange Act (check one).


Large
  accelerated filer                  Accelerated
  filer                  
  Non-accelerated filer

Indicate by check mark which financial
    statement item the registrant has elected to follow:


Item 17         Item
      18

If this is an Annual Report, indicate
    by checkmark whether the registrant is a shell company (as defined in Rule
    12b-2 of the Exchange Act).


Yes         No

|
|
|
|



Back to Contents

TABLE
  OF CONTENTS

|                                                           |  |                                                               |  | Page | 
|---------------------------------------------------------- |  | ------------------------------------------------------------- |  | ---- | 
|                                                           |  |                                                               |  |      | 
|Introduction                                               |  |                                                               |  | 4    | 
|Cautionary
      Note Regarding Forward-Looking Statements |  | 5                                                             | 
|                                                           |  |                                                               | 
|PART
      I                                              
|Item 1.                                                    |  | Identity of Directors,
      Senior Management and Advisors   |  | 6    | 
|Item 2.                                                    |  | Offer Statistics
      and Expected Timetable                 |  | 6    | 
|Item 3.                                                    |  | Key Information                                               |  | 6    | 
|                                                           |  | Selected Consolidated
      Financial Information             |  | 6    | 
|                                                           |  | Risk Factors                                                  |  | 11   | 
|Item 4.                                                    |  | Information on the
      Company                              |  | 18   | 
|                                                           |  | Summary                                                       |  | 18   | 
|                                                           |  | Acquisitions, Dispositions
      and Capital Expenditure      |  | 21   | 
|                                                           |  | Segmental Information                                         |  | 22   | 
|                                                           |  | Pubs & Bars                                                   |  | 23   | 
|                                                           |  | Restaurants                                                   |  | 24   | 
|                                                           |  | Standard Commercial
      Property Developments               |  | 25   | 
|                                                           |  | Organizational Structure                                      |  | 25   | 
|                                                           |  | Marketing                                                     |  | 25   | 
|                                                           |  | Geographical Analysis                                         |  | 26   | 
|                                                           |  | Key Competitors                                               |  | 26   | 
|                                                           |  | Key Supply Partners                                           |  | 27   | 
|                                                           |  | Regulatory Environment                                        |  | 27   | 
|                                                           |  | Environmental Policy                                          |  | 31   | 
|                                                           |  | Trademarks                                                    |  | 31   | 
|                                                           |  | Property, Plants
      and Equipment                          |  | 31   | 
|Item 4A.                                                   |  | Unresolved Staff
      Comments                               |  | 31   | 
|Item 5.                                                    |  | Operating and Financial
      Review and Prospects            |  | 32   | 
|                                                           |  | Introduction                                                  |  | 32   | 
|                                                           |  | Key Factors Affecting
    Results of Operations               |  | 33   | 
|                                                           |  | Critical Accounting
      Estimates under UK GAAP and US GAAP |  | 33   | 
|                                                           |  | International Financial Reporting Standards                   |  | 34   | 
|                                                           |  | New Accounting Standards                                      |  | 38   | 
|                                                           |  | Operating Results                                             |  | 38   | 
|                                                           |  | Liquidity and Capital
      Resources                         |  | 44   | 
|                                                           |  | Material Trends
          And Uncertainties                   |  | 46   | 
|                                                           |  | Off Balance Sheet
      Arrangements                          |  | 46   | 
|                                                           |  | Tabular Disclosure
      of Contractual Obligations           |  | 47   | 
|Item 6.                                                    |  | Directors, Senior
      Management and Employees              |  | 48   | 
|                                                           |  | Directors and Senior
      Management                         |  | 48   | 
|                                                           |  | Compensation                                                  |  | 50   | 
|                                                           |  | Board Practices                                               |  | 53   | 
|                                                           |  | Employees                                                     |  | 55   | 
|                                                           |  | Share Ownership                                               |  | 56   | 
|                                                           |  | Share Options                                                 |  | 57   | 
|                                                           |  | Employee Share Plans                                          |  | 59   | 
|Item 7.                                                    |  | Major Shareholders
      and Related Party Transactions       |  | 60   | 
|                                                           |  | Major Shareholders                                            |  | 60   | 
|                                                           |  | Related Party Transactions                                    |  | 60   | 
|                                                           |  | Interests of Experts
      and Counsel                        |  | 61   | 
|Item 8.                                                    |  | Financial Information                                         |  | 62   | 
|                                                           |  | Financial Statements
      and Other Financial Information    |  | 62   | 
|                                                           |  | Significant Changes                                           |  | 62   | 



2


---



Back to Contents

|          |  |                                                                                    |  | Page | 
|--------- |  | ---------------------------------------------------------------------------------- |  | ---- | 
|          |  |                                                                                    |  |      | 
|Item 9.   |  | The Offer and Listing                                                              |  | 63   | 
|          |  | Plan of Distribution                                                               |  | 63   | 
|          |  | Markets                                                                            |  | 63   | 
|          |  | Selling Shareholders                                                               |  | 64   | 
|          |  | Dilution                                                                           |  | 64   | 
|          |  | Expenses of the
      Issue                                                        |  | 64   | 
|Item 10.  |  | Additional Information                                                             |  | 65   | 
|          |  | Share Capital                                                                      |  | 65   | 
|          |  | Memorandum and Articles
      of Association                                       |  | 65   | 
|          |  | Material Contracts                                                                 |  | 65   | 
|          |  | Exchange Controls                                                                  |  | 66   | 
|          |  | Taxation                                                                           |  | 66   | 
|          |  | Statement of Experts                                                               |  | 69   | 
|          |  | Documents on Display                                                               |  | 69   | 
|          |  | Subsidiary Information                                                             |  | 69   | 
|Item 11.  |  | Quantitative and
      Qualitative Disclosures about Market Risk                   |  | 70   | 
|Item 12.  |  | Description of Securities
      other than Equity Securities                       |  | 71   | 
|          |  |                                                                                    |  |      | 
|          |  | PART II                                                                            |  |      | 
|Item 13.  |  | Defaults, Dividend
      Arrearages and Delinquencies                              |  | 72   | 
|Item 14.  |  | Material Modifications
      to the Rights of Security Holders and Use of Proceeds |  | 72   | 
|Item 15.  |  | Controls and Procedures                                                            |  | 72   | 
|Item 16A. |  | Audit Committee
      Financial Expert                                             |  | 72   | 
|Item 16B. |  | Code of Ethics                                                                     |  | 72   | 
|Item 16C. |  | Principal Accountant
      Fees and Services                                       |  | 73   | 
|Item 16D. |  | Exemptions from the
      Listing Standards for Audit Committee                    |  | 74   | 
|Item 16E. |  | Purchases of Equity
      Securities by the Issuer and Affiliated Purchasers       |  | 74   | 
|          |  |                                                                                    |  |      | 
|          |  | PART III                                                                           |  |      | 
|Item 17.  |  | Financial Statements                                                               |  | 75   | 
|Item 18.  |  | Financial Statements                                                               |  | 75   | 
|Item 19.  |  | Exhibits                                                                           |  | 76   | 
|          |  |                                                                                    |  |      | 

3

---



Back to Contents

INTRODUCTION

As used in this document, except as the context
  otherwise requires, the terms:


| | • | Beer Orders refers to the Supply
      of Beer (Tied Estate) Order 1989 and the Supply of Beer (Loan Ties,
      Licensed Brewers and Wholesale Prices) Order 1989;                                                                                                                                                                                                                                                                                                                                                                                                                              
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Business Franchise refers to
      arrangements whereby the Company enters into a support agreement
       with a third party under which, for an annual fee, the Group provides
      goods
      and advice (including IT systems, menu
       support, etc.);                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Britvic refers to Britannia Soft
      Drinks Limited;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Buy-back refers to the £100
      million program undertaken by the Company during fiscal 2005 to repurchase
      and cancel, or hold in treasury or the Employee Benefit Trust, its shares;                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Company or M and B
      refers to Mitchells & Butlers plc;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Directors or Board
      refers to members of the board of directors of the Company either
      individually or collectively, as the context may
      require;                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Exchange Act means the Securities
      Exchange Act of 1934 as amended;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | InterContinental Group refers to
      InterContinental Hotels Group PLC and those companies that became
      its subsidiaries or its subsidiary undertakings upon completion of the Separation;                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | M and B Group or Group
      refers to the Company and, where appropriate, those companies that
      became its subsidiaries or its subsidiary undertakings
      upon completion of the Separation;                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | ordinary share or M and
        B  share refer to the ordinary shares of71/12p
         each of the Company following
         the  share consolidation and to the ordinary shares of 5p each prior
         to the share
      consolidation;                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | SCPD refers to the Groups
         property development business, which primarily comprises Standard
      Commercial Property Developments Ltd and Standard
      Commercial Property Securities Ltd;                                                                                                                                                                                                                                                                                                                                                                                          
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Securitization refers to the refinancing
      of the Groups debt completed on November 13, 2003 through
      the issuance of £1,900 million of secured loan notes by a wholly-owned
      Group subsidiary, Mitchells & Butlers
      Finance plc, which were secured against the majority of the Groups
      UK pubs and pub-restaurants business;                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Senior Management Team refers to
      the Board and the other senior management listed in Item 6.
      Directors, Senior Management and Employees 
      Directors and Senior Management;                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Separation Transaction or Separation
      refers to the transaction that separated Six Continents hotels
      business and soft drinks business from its retail business (herein referred
      to as Retail) completed on
      April 15, 2003. The Separation resulted in two separately listed holding
      companies, (i) Mitchells & Butlers
      plc, which is the holding company for Retail and SCPD, and (ii) InterContinental
      Hotels Group PLC, which was the holding company for the hotels business
      and soft drinks business, of the Six Continents
      Group;
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Share consolidation refers to the
      share consolidation which took place on December 2, 2003 where
      for every 12 shares of 5p each, 17 new ordinary shares of71/12peach were issued;                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Six Continents refers to Six Continents
      PLC prior to Separation (formerly known as Bass PLC or Bass);                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Six Continents Group refers to
      Six Continents PLC and its subsidiaries prior to Separation;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | VAT refers to UK value added tax
      levied by HM Revenue & Customs on certain goods and services;
      and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | White Paper refers to an initial
      UK government or EU consultation document setting out proposed
      new legislation or directives.                                                                                                                                                                                                                                                                                                                                                                                                                                                       

References in this document to the Companies
    Act mean the Companies Act 1985, as amended, of Great Britain; references
    to the EU mean the European Union; and references in this document
    to UK mean the United Kingdom of Great Britain and Northern Ireland.


Where externally provided statistics are quoted,
    these are the most up-to-date available at the date of certifying this document.


Upon Separation, Mitchells & Butlers plc became
    the holding company for the Group. The retail operating company, Mitchells
    & Butlers Retail Limited, was known as Six Continents Retail Limited prior
    to Separation.


4

---



Back to Contents

The Companys consolidated financial statements
    appearing in this annual report are expressed in UK pounds sterling. In this
    document, references to US dollars, US$, $
    or ¢ are to United States (US) currency, references to euro
    or  are to the euro, the currency of the European Economic
    and Monetary Union, and references to pounds sterling, sterling,
    £, pence or p are to United Kingdom
    currency. Solely for convenience, this annual report contains translations
    of certain pounds sterling amounts into US dollars at specified rates. These
    translations should not be construed as representations that the pounds sterling
    amounts actually represent such US dollar amounts or could be converted into
    US dollars at the rates indicated. Unless otherwise indicated, the translations
    of pounds sterling into US dollars have been made at the rate of £1.00
    = $1.77, the noon buying rate in The City of New York for cable transfers
    in pounds sterling as certified for customs purposes by the Federal Reserve
    Bank of New York on September 30, 2005 (the last available date in the fiscal
    year). On February 10, 2006 the noon buying rate was £1.00 = $1.75.
    For information regarding rates of exchange between pounds sterling and US
    dollars from fiscal 2000 to the present, see Item 3. Key Information
     Selected Consolidated Financial Information  Exchange Rates.


The Companys fiscal year ends on the Saturday
    directly preceding or directly after September 30 of each year. The Companys
    fiscal years can therefore vary in length from 52 to 53 weeks. References
    in this document to a particular year are to the fiscal year unless otherwise
    indicated. For example, the Company refers to the 53 weeks ended October 1,
    2005 as fiscal 2005, and other fiscal years in a similar manner as follows:


|Fiscal 2004 |  | 52 weeks ended September 25, 2004
|----------- |  | ---------------------------------
|Fiscal 2003 |  | 52 weeks ended September 27, 2003
|Fiscal 2002 |  | 52 weeks ended September 28, 2002
|Fiscal 2001 |  | 52 weeks ended September 29, 2001

The Companys consolidated financial statements
    are prepared on the basis of accounting principles generally accepted in the
    United Kingdom (UK GAAP) which differ from those generally accepted
    in the United States (US GAAP). The significant differences applicable
    to the M and B Group are explained in Note 31 of Notes to the Financial Statements.


On July 19, 2005, the Company voluntarily terminated
    its American Depositary Receipt (ADR) program and on August 5,
    2005, delisted from the New York Stock Exchange. The Directors decided to
    terminate the ADR program and delist because the listing was a legacy of the
    Separation and participation in the ADR program had reduced substantially
    since demerger, reflecting the fact that the Company does not operate in the
    US. Holders of ADRs were entitled to exchange their M and B American Depositary
    Shares (ADS) by September 16, 2005 for the appropriate number
    of underlying M and B ordinary shares. On September 19, 2005, the Bank of
    New York, as depositary for the ADR program, sold the ordinary shares in respect
    of M and B ADSs not submitted for exchange by September 16, 2005.


In addition, in view of the significant and disproportionate
       costs to the Company of maintaining a US registration, the Company intends

    to examine ways in which it may terminate its Exchange Act registration in
       due course. On February 2, 2006, the Companys shareholders approved
    an amendment to the Articles of Association that allows the Board of Directors
    to require certain US shareholders to sell their ordinary shares so that
    the
    Company may be certain that the number of US shareholders is below the appropriate
    threshold to enable the Company to deregister. The Board of Directors is
       currently considering the implementation of this provision and an announcement
       will
       be made promptly when a decision is taken to invoke it.


CAUTIONARY
  NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Form 20-F contains certain forward-looking
    statements as defined under US legislation (section 21E of the Securities
    Exchange Act of 1934) with respect to the financial condition, results of
    operations and business of the Group and certain of the plans and objectives
    of the board of directors with respect thereto. These forward-looking statements
    can be identified by the fact that they do not relate only to historical or
    current facts. Forward-looking statements often use such words as anticipate,
    target, expect, estimate, intend,
    plan, goal, believe or other words of
    similar meaning. Such statements in the Form 20-F include, but are not limited
    to, statements under the following headings: (i) Item 4. Information
    on the Company; (ii) Item 5. Operating and Financial Review and
    Prospects; (iii) Item 8. Financial Information; and (iv)
    Item 11. Quantitative and Qualitative Disclosures about Market Risk.
    Specific risks faced by the Company are described under Item 3. Key
    Information  Risk Factors. These statements are based on assumptions
    and assessments made by the Groups management in light of their experience
    and their perception of historical trends, current conditions, expected future
    developments and other factors they believe to be appropriate. By their nature,
    forward-looking statements are inherently predictive, speculative and involve
    risk and uncertainty, and the factors described in the context of such forward-looking
    statements in this document could cause actual results and developments to
    differ materially from those expressed in or implied by such forward-looking
    statements. These factors include, but are not limited to: the future balance
    between supply and demand for the Groups sites; the effect of economic
    conditions and unforeseen external events on the Groups business; the
    availability of suitable properties and necessary licenses; consumer and business
    spending; changes in consumer tastes and preferences; levels of marketing
    and promotional expenditure by the Group and its competitors; changes in key
    personnel; changes in the cost and availability of supplies, and in supplier
    dynamics; significant fluctuations in exchange rates, interest rates and tax
    rates; the availability and effects of any future business combinations, acquisitions
    or dispositions; the impact of legal and regulatory actions or developments;
    the impact of the European Economic and Monetary Union; the ability of the
    Group to maintain appropriate levels of insurance; the maintenance of the
    Groups IT structure; competition in markets in which the Group operates;
    political and economic developments and currency exchange fluctuations; economic
    recession; management of the Groups indebtedness and capital resource
    requirements; material litigation against the Group; substantial trading activity
    in the Groups shares; the reputation of the Groups brands; the
    level of costs associated with leasedproperties;
    competition for high quality managers; declining sales of beer in pubs in
    the UK; food safety scares; funding liabilities
  in respect of the Groups pension schemes; and the weather.


5

---



Back to Contents

PART I

|ITEM 1.IDENTITY OF DIRECTORS, SENIOR MANAGEMENT
    AND ADVISORS
|----------------------------------------------------------------

Not applicable.


|ITEM 2.OFFER
    STATISTICS AND EXPECTED TIMETABLE
|--------------------------------------------------

Not applicable.


|ITEM 3.KEY
    INFORMATION
|--------------------------

SELECTED CONSOLIDATED FINANCIAL INFORMATION

|Summary
|-------

The selected consolidated financial information set forth below at the end of fiscal 2005 and 2004 and for fiscal years 2005, 2004 and 2003 is derived from the audited Consolidated Financial
Statements of the Group included elsewhere in this Annual Report. The selected consolidated financial information set forth below at the end of fiscal 2003 and 2002 and for fiscal years 2002 and 2001 is derived from the audited Consolidated
Financial Statements of the Group included in the Annual Report on Form 20-F for the year ended September 27, 2003. The selected consolidated financial information set forth below at the end of fiscal 2001 is derived from the audited combined
financial statements of the Group included in its Registration Statement on Form 20-F filed with the Securities and Exchange Commission on March 28, 2003. All of these audited financial statements have been audited by the Companys registered
independent public accounting firm, Ernst & Young LLP. The selected consolidated financial information set forth below, which has been restated where appropriate to accord with the Groups current accounting policies and presentation,
should be read in conjunction with, and is qualified in its entirety by reference to, the Consolidated Financial Statements and Notes thereto included elsewhere in this annual report.


Significant changes were made to M and Bs capital structure as a result of the Separation from Six Continents on April 15, 2003. The selected consolidated financial information below for
periods prior to the Separation reflects the capital structure then in place, which was appropriate historically to Six Continents, and the capital position, interest charges and tax liabilities for those periods may not reflect M and Bs
capital position, interest charges and tax liabilities had it been an independently financed and managed group during such periods, or for any future period.


The consolidated financial statements have been prepared in accordance with UK GAAP which differ in certain respects from US GAAP. A description of the significant differences and
reconciliations of net income for fiscal 2005, 2004 and 2003 and shareholders equity at the end of fiscal 2005 and 2004 are set forth in Note 31 of Notes to the Financial Statements.


6

---



Back to Contents

|Consolidated Profit and Loss Account                                  |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|--------------------------------------------------------------------- | ------------------------------------------------ | - | ----- | - | ------------------ | - | -------------------- | - | -------------------- | - | ----- | -
|                                                                      | 2005(i)`                                         |   | 2005  |   | 2004
Restated (ii) |   | 2003
  Restated (ii) |   | 2002
  Restated (ii) |   | 2001  |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|                                                                      | $                                                |   | £     |   | £                  |   | £                    |   | £                    |   | £     |  
|                                                                      | (in millions, except for ordinary share amounts) |  
|Amounts in accordance with UKGAAP                                     |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Turnover:                                                             |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Pubs & Bars                                                           | 1,694                                            |   | 957   |   | 913                |   | 873                  |   | 863                  |   | 828   |  
|Restaurants                                                           | 1,234                                            |   | 697   |   | 641                |   | 614                  |   | 605                  |   | 561   |  
|Inns and other                                                        |                                                 |   |      |   |                   |   |                     |   |                     |   | 161   |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Retail                                                                | 2,928                                            |   | 1,654 |   | 1,554              |   | 1,487                |   | 1,468                |   | 1,550 |  
|SCPD                                                                  | 14                                               |   | 8     |   | 6                  |   | 17                   |   | 6                    |   | 5     |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|                                                                      | 2,942                                            |   | 1,662 |   | 1,560              |   | 1,504                |   | 1,474                |   | 1,555 |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Total operating profit before
    operating exceptional items:        |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Pubs & Bars                                                           | 319                                              |   | 180   |   | 173                |   | 172                  |   | 184                  |   | 187   |  
|Restaurants                                                           | 205                                              |   | 116   |   | 99                 |   | 92                   |   | 93                   |   | 87    |  
|Inns and other                                                        |                                                 |   |      |   |                   |   |                     |   |                     |   | 31    |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Retail                                                                | 524                                              |   | 296   |   | 272                |   | 264                  |   | 277                  |   | 305   |  
|SCPD                                                                  | 2                                                |   | 1     |   | 1                  |   | 2                    |   | 1                    |   | 1     |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|                                                                      | 526                                              |   | 297   |   | 273                |   | 266                  |   | 278                  |   | 306   |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Operating exceptional items (iii)                                     | (8                                               | ) | (4    | ) | (2                 | ) | (5                   | ) |                     |   |      |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Total operating profit                                                | 518                                              |   | 293   |   | 271                |   | 261                  |   | 278                  |   | 306   |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Non-operating exceptional items                                       | 2                                                |   | 1     |   | 2                  |   | (42                  | ) | (2                   | ) | (36   | )
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Profit on ordinary activitiesbefore
                  interest        | 520                                              |   | 294   |   | 273                |   | 219                  |   | 276                  |   | 270   |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Net interest payable and similar charges:                             |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Interest on net debt                                                  | (186                                             | ) | (105  | ) | (101               | ) | (55                  | ) | (43                  | ) | (58   | )
|Exceptional interest                                                  |                                                 |   |      |   | (2                 | ) | (8                   | ) |                     |   |      |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Net
              finance income/(expense)
    in respect of pensions | 6                                                |   | 3     |   | 1                  |   | (2                   | ) | 6                    |   |      |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|                                                                      | (180                                             | ) | (102  | ) | (102               | ) | (65                  | ) | (37                  | ) | (58   | )
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Profit
              on ordinary activities before
    taxation       | 340                                              |   | 192   |   | 171                |   | 154                  |   | 239                  |   | 212   |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Taxation                                                              | (105                                             | ) | (59   | ) | (53                | ) | (37                  | ) | (78                  | ) | (82   | )
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Earnings available for shareholders                                   | 235                                              |   | 133   |   | 118                |   | 117                  |   | 161                  |   | 130   |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Per ordinary share: (iv)                                              | $                                                |   | £     |   | £                  |   | £                    |   | £                    |   | £     |  
|Basic                                                                 | 0.46                                             |   | 0.26  |   | 0.21               |   | 0.16                 |   | 0.22                 |   | 0.18  |  
|Adjusted (v)                                                          | 0.46                                             |   | 0.26  |   | 0.21               |   | 0.19                 |   | 0.22                 |   | 0.24  |  
|Diluted                                                               | 0.45                                             |   | 0.26  |   | 0.21               |   | 0.16                 |   | 0.22                 |   | 0.18  |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Amounts
                in accordancewith
    US GAAP                 |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Net income                                                            | 214                                              |   | 121   |   | 122                |   | 101                  |   | 168                  |   | 464   |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|Per ordinary share (vi)                                               | $                                                |   | £     |   | £                  |   | £                    |   | £                    |   | £     |  
|Basic                                                                 | 0.42                                             |   | 0.24  |   | 0.23               |   | 0.19                 |   | 0.32                 |   | 0.90  |  
|Diluted                                                               | 0.41                                             |   | 0.23  |   | 0.23               |   | 0.19                 |   | 0.32                 |   | 0.90  |  
|                                                                      |                                                  |   |       |   |                    |   |                      |   |                      |   |       |  
|All activities relate to continuing operations.                       |                                                  |   |       |   |                    |   |                      |   |                      |   |      

|                            
|----------------------------
|Footnotes on following page.

7

---



Back to Contents

Consolidated
        Balance Sheet Data

|                                                           | 2005 (i) |        | 2005 |   | 2004
Restated (ii) |   | 2003Restated (ii) |        | 2002Restated (ii) |   | 2001Restated (ii) |  
|---------------------------------------------------------- | -------- | ------ | ---- | - | ------------------ | - | ----------------- | ------ | ----------------- | - | ----------------- | -
|                                                           |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|$                                                          |          | £      |      | £ |                    | £ |                   | £      |                   | £ |                  
|(in
                millions)                              |         
|Amounts in accordance withUK
GAAP                          |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|Intangible assets                                          |          | 18     |      |   | 10                 |   |                   | 10     |                   |   | 11                |  
|Tangible assets                                            |          | 6,223  |      |   | 3516               |   |                   | 3,509  |                   |   | 3,522             |  
|Non-current assets                                         |          | —      |      |   | —                  |   |                   | —      |                   |   | 11                |  
|Current assets                                             |          | 558    |      |   | 315                |   |                   | 350    |                   |   | 138               |  
|Total assets                                               |          | 6,799  |      |   | 3,841              |   |                   | 3,869  |                   |   | 3,682             |  
|                                                           |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|Amounts due to Six ContinentsGroup
              companies |          | —      |      |   | —                  |   |                   | —      |                   |   | —                 |  
|Other current liabilities                                  |          | (620   | )    |   | (350               | ) |                   | (326   | )                 |   | (508              | )
|Long-term debt                                             |          | (3,161 | )    |   | (1,786             | ) |                   | (1,822 | )                 |   | (1,001            | )
|Non-current liabilities                                    |          | (335   | )    |   | (189               | ) |                   | (184   | )                 |   | (178              | )
|Net pension liabilities (net of deferred tax)              |          | (175   | )    |   | (99                | ) |                   | (114   | )                 |   | (170              | )
|Shareholders funds/invested capital                       |          | (2,508 | )    |   | (1,417             | ) |                   | (1,423 | )                 |   | (1,825            | )
|                                                           |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|Number
    of ordinary shares(millions) (vii)              |          | 500    |      |   | 500                |   |                   | 524    |                   |   | 736               |  
|                                                           |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|Amounts in accordance withUS
GAAP                          |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|Intangible assets                                          |          | 380    |      |   | 215                |   |                   | 220    |                   |   | 221               |  
|Tangible assets                                            |          | 4,664  |      |   | 2,635              |   |                   | 2,620  |                   |   | 2,621             |  
|Current assets                                             |          | 563    |      |   | 318                |   |                   | 353    |                   |   | 139               |  
|Non-current assets                                         |          | 76     |      |   | 43                 |   |                   | 37     |                   |   | 30                |  
|Total assets                                               |          | 5,683  |      |   | 3,211              |   |                   | 3,230  |                   |   | 3,011             |  
|                                                           |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|Current liabilities                                        |          | (575   | )    |   | (325               | ) |                   | (294   | )                 |   | (479              | )
|Long-term debt                                             |          | (3,170 | )    |   | (1,791             | ) |                   | (1,824 | )                 |   | (1,001            | )
|Non-current liabilities                                    |          | (312   | )    |   | (176               | ) |                   | (152   | )                 |   | (118              | )
|Net pension liabilities                                    |          | (219   | )    |   | (124               | ) |                   | (154   | )                 |   | (212              | )
|Shareholders equity/investedcapital                       |          | (1,407 | )    |   | (795               | ) |                   | (806   | )                 |   | (1,201            | )
|                                                           |          |        |      |   |                    |   |                   |        |                   |   |                   |  
|Number
    of ordinary shares(millions) (vii)              |          | 500    |      |   | 500                |   |                   | 524    |                   |   | 520               |  
|                                                           |          |        |      |   |                    |   |                   |        |                   |   |                   |  

|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(i)   | US dollar amounts have been translated
        at the noon buying rate on September 30, 2005 (the last available date
    in the fiscal year) of £1.00 = $1.77.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(ii)  | Amounts in accordance with UK GAAP, with
        the exception of 2001 profit and loss account, are restated on the full
        adoption of FRS17 Retirement Benefits (see Note 3 of Notes
        to the Financial Statements). The results for fiscal 2001 have not been
        restated as necessary data is not available; 2001 amounts are therefore
        disclosed under SSAP 24 Accounting for Pension Costs. Amounts
        in accordance with US GAAP are restated to (a) reclassify lease premiums
        paid in relation to operating leases from tangible fixed assets to current
        and non-current assets, and (b) reclassify computer software from tangible
        fixed assets to intangible fixed assets. These reclassifications arose
        in connection with
preparing to convert the Groups financial statements from UK GAAP to International
Financial Reporting Standards. None of these restatements have an impact on previously
reported net income or shareholders equity under US
GAAP.
|(iii) | The operating exceptional items for
        fiscal 2005 can be allocated as £3 million to Pubs & Bars and £1
        million to Restaurants. Due to the nature of the operating exceptional
        items relating to previous periods, it is not possible to provide a meaningful
    allocation of the costs to the operating segments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(iv)  | Under UK GAAP, basic, adjusted and diluted
        per ordinary share amounts for fiscal 2002 and 2001 are based on 734
    million shares, being the number of M and B shares outstanding on Separation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|(v)   | Under UK GAAP, adjusted earnings per share
        are disclosed in order to show performance undistorted by exceptional
    items, see Note 12 of Notes to the Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(vi)  | Under US GAAP, basic and diluted earnings
        per ordinary share and, prior to termination of the ADR program, American
        Depositary Share amounts, are based on share numbers that have been retrospectively
        adjusted to reflect the reduction in share numbers resulting from the
        share consolidation that took place on December 2, 2003. Prior to termination
        of the ADR program, each American Depositary Share represented one ordinary
        share. See Note 31 of Notes to the
Financial Statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(vii) | The number of ordinary shares represents
        the number of shares in issue and fully paid up at the balance sheet
        date. Of these, 4 million (2004 4 million, 2003 nil, 2002 nil, 2001 nil)
        were held in treasury
(treasury shares) and by employee share trusts. It has been assumed
for fiscal 2002 and 2001 that the number of ordinary shares in issue on April
15, 2003, following separation from Six Continents was the number of shares in
issue prior
to this date. On December 2, 2003, the Companys ordinary share capital
was consolidated on a 12 for 17 basis. 520 million new ordinary shares of 71/12p
each were issued in exchange for 736 million existing ordinary shares of 5p each.
For amounts in accordance with US GAAP, the numbers of ordinary shares outstanding
at the balance sheet date for 2003, 2002 and 2001 have been adjusted to reflect
the share
consolidation. No such adjustment is made under UK GAAP.                                                                        

8

---



Back to Contents

Dividends

M and B paid a final 2005 dividend of 7.55p on February 6, 2006. Together with the normal interim dividend of 3.20p paid on June 30, 2005, this made a total normal dividend for the year of
  10.75p. Looking forward, M and B intends to pursue a progressive dividend policy to deliver real growth in dividends from the level established in 2004.


The table below sets out the amount of dividends declared per ordinary share since incorporation on October 2, 2002. The dividends paid per ADS, prior to termination of the ADR program, have
been translated into US dollars at the noon buying rate on each of the respective dividend payment dates. As the ADR program terminated on July 19, 2005, no final 2005 dividend is payable on ADRs.


|                     |                          | Fiscal year | 
|-------------------- | ------------------------ | ----------- | 
|                     |                          |             | 
|                     |                          | 2006        | 
|                     |                          |             | 
|                     |                          | (pence)     | 
|Per ordinary share : | Final for 2003           |            | 
|                     | Special interim for 2004 |            | 
|                     | Normal interim for 2004  |            | 
|                     | Final for 2004           |            | 
|                     | Interim for 2005         |            | 
|                     | Final for 2005           | 7.55        | 
|                     |                          |             | 
|                     |                          | (cents)     | 
|Per ADS:             | Final for 2003           |            | 
|                     | Special interim for 2004 |            | 
|                     | Normal interim for 2004  |            | 
|                     | Final for 2004           |            | 
|                     | Interim for 2005         |            | 

The special interim dividend for 2004 was paid based on the pre-share consolidation number of ordinary shares outstanding. All other dividends were paid based on the post share consolidation
number of ordinary shares outstanding.


The following tables show, for the periods and dates indicated, certain information regarding the exchange rate for pounds sterling, based on the noon buying rate for pounds sterling expressed
in US dollars per £1.00. The exchange rate on February 10, 2006 was £1.00 = US$1.75.


9

---



Back to Contents

|                                          |  | Months       |  | Months       | 
|----------------------------------------- |  | ------------- |  | ------------- | 
|                                          |  | highest       |  | lowest        | 
|Month                                     |  | exchange rate |  | exchange rate | 
|                                          |  |               |  |               | 
|August 2005                               |  | 1.81          |  | 1.77          | 
|September 2005                            |  | 1.84          |  | 1.76          | 
|October 2005                              |  | 1.79          |  | 1.75          | 
|November 2005                             |  | 1.78          |  | 1.71          | 
|December 2005                             |  | 1.77          |  | 1.72          | 
|January 2006                              |  | 1.79          |  | 1.74          | 
|February 2006 (through February 10, 2006) |  | 1.78          |  | 1.74          | 

|            |  | Period |  | Average  |  |      |  |      | 
|----------- |  | ------ |  | -------- |  | ---- |  | ---- | 
|Fiscal year |  | end    |  | rate (i) |  | High |  | Low  | 
|            |  |        |  |          |  |      |  |      | 
|2001        |  | 1.47   |  | 1.44     |  | 1.50 |  | 1.37 | 
|2002        |  | 1.57   |  | 1.48     |  | 1.58 |  | 1.41 | 
|2003        |  | 1.66   |  | 1.61     |  | 1.68 |  | 1.54 | 
|2004        |  | 1.80   |  | 1.79     |  | 1.90 |  | 1.66 | 
|2005        |  | 1.77   |  | 1.85     |  | 1.95 |  | 1.73 | 

|   
|---
|(i)

10

---



Back to Contents



RISK FACTORS


This section describes
      some of the risks that could materially affect the Groups businesses. The risks listed below are not the only ones that the Group faces  some
      risks are not yet known to the Group and some that the Group does not currently
      believe to be material could later turn out to be material. All of these
      risks could materially affect the Group, its turnover, operating profit,
      earnings, net assets, liquidity and
capital resources. In such case, the market price of the Ordinary Shares may
decline and investors may lose part or all of their investment.


General Risks

The Group is exposed to the risks of economic
    downturn

The Group is exposed
      to the risks of an economic downturn in the United Kingdom and to a lesser
      extent in Germany. A downturn in either market could result in lower consumer
      expenditure and
therefore lower revenues and reduced net income. The Groups Alex sites in Germany have experienced lower revenues in previous years as a result of the current economic climate in Germany. In previous years, the Groups sites in London
also experienced lower revenues as a result of economic downturn, from decreased activity in the financial markets and from reduced tourist visits as a result of the terrorist attacks on September 11, 2001 in the United States, and also the ongoing
conflict in the Middle East. The July, 2005 terrorist attacks in London also had an adverse impact on the Groups London sites. The occurrence of similar events in the future or a future economic downturn (caused by increases in interest rates
and falling property prices in the United Kingdom, for example) could have a similar impact on the Groups
business.


Both in the United Kingdom
      and in Germany, the Groups operations are subject to regulation, and further changes in regulation could adversely affect results of operations, including
through higher costs. More restrictive regulations could also lead to increasing prices to consumers, which in turn may adversely affect demand and therefore revenues and profitability. See Item 4. Information on the Company  Regulatory
Environment for additional information on the regulation to which the Group is subject. In particular, some examples of the regulatory changes which could affect the Groups
cost base include:


| | • | additional EU or UK employment legislation, which could further increase
        labor costs. In particular, legislation related to the level of the national
        minimum wage is under annual review by the UK Low Pay Commission. The
        UK Trades Union Congress is seeking to raise the minimum wage,
which is currently £5.05 per hour. Although the Government has effected
increases
in minimum wage materially above the rate of inflation and actual growth in labor
productivity over the last four years, it is anticipated that the national minimum
wage for adults
will be raised by 30p to £5.35 per hour from October 2006. As over 50% of the Groups
retail employees are paid the minimum wage, an increase of
this magnitude would
materially increase the Groups labor costs.
Labor costs could further increase if the current legislation is changed regulating
the maximum number of statutory holidays afforded to employees, the maximum number
of hours an employee may be permitted to work and if the extent to which they
may voluntarily opt-out is tightened by the European Union;    
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | competition, consumer protection and environmental law changes, which could
        require the way it currently operates, which could result in higher costs
        and/or lower revenues for the
Group;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | clarification from the courts as to what constitutes reasonable adjustment to
    prevent disabled customers being placed at a substantial disadvantage in
    terms of access to premises under the Disability Discrimination Act 1998,
    which may require further alteration and expenditure to that already
made to certain of the Groups sites;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | the Licensing Act 2003, which became fully effective in November 2005. Responsibility
        for the administration of licensing now rests with local authorities,
        rather than magistrates. Pub operators wishing to change the hours of
        opening of their premises have to apply to the local authority for permission,
        submitting an operating plan. Local residents, the police and
other relevant agencies have the right to object to the application on certain
        defined grounds, in which case the local authority must hold a hearing
        and reach a determination. Although the vast majority of
the Groups sites have been successful in their initial applications to
extend previous hours of opening, there is a risk that future applications may
not succeed and therefore further changes to existing hours will not be permitted.
This may mean that the Group might not be able to take advantage of longer trading
hours in
certain of its premises and, as a result, lose customers to competitor businesses,
which may have successfully obtained longer opening hours;
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | • | fees for license applications, which are determined by the Government, and
        were increased in January 2005 from the levels previously expected. An
        independent panel has been set up by the Government to review the level
        of licensing fees, which is due to issue a report of its finding in late
        2006. If the fee levels were to be increased further this would increase
        the costs that will be incurred by the Group. Also, additional or more
        stringent licensing requirements could be imposed on
the Groups operations in the future, which could
further increase costs; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

11

---



Back to Contents

| | • | in
          parallel with the recent reforms in England and Wales, the Scottish
          Parliament initiated a review of licensing law under the auspices of
          the Nicholson Committee. The Nicholson CommitteesReport
          was published in August 2003 and contained a number of proposals for
          the reform of licensing law
          in Scotland. Following a period of consultation. the Scottish Executive
          has published a draft Bill, which, if enacted in its present form,
          would substantially implement the recommendations of the Nicholson
          Committee. In the draft Bill, there is currently no provision which
          preserves a pubs grandfather rights which could mean
          that the benefit of existing license extensions could be lost when
          a new application under the new licensing regime is submitted. This
          could result in a loss in revenue to some or all of the Groups
          outlets in Scotland. Under the current legislative timetable, there
          will be an 18 month transition period commencing from February 2008
          during which time licensees will have to submit applications for new
          premises and personal licenses which will be required from August 2009,
          when the new licensing regime becomes fully effective. It is too early
          to say precisely what impact the new regime could have on the Groups
          business. However, it is likely that the Group will incur additional
          costs during the transitional period and more stringent licensing requirements
          could be imposed on the Groups operations in the future, which
    could further increase costs.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

The Groups sites must compete with other pubs and
restaurants and consumption at home

The Groups pubs and pub-restaurants compete for consumers with a wide variety of other branded and non-branded pubs and restaurants as well as off-licenses, supermarkets and takeaways,
some of which may offer higher amenity levels or lower prices and be backed by greater financial and operational resources. The large supermarket groups, in particular, are often selling alcohol at greatly discounted prices as an element of their
marketing strategy. The Group may be forced to decrease prices in its outlets in order to compete with such lower prices in both the off-trade and the on-trade. For example, in 1995, 73% of all alcohol by value was purchased in pubs, clubs and
restaurants. By 2004, this had dropped to 70%. Some supermarkets have also been granted 24 hour licenses to sell alcohol. The Groups pubs and pub-restaurants may not be successful in competing against any or all of these alternatives and a
sustained loss of customers and/or skilled employees to other pubs or leisure activities or increased consumption at home could have a material adverse effect on the Groups
business operations and prospects.


Around 20% (excluding
      London) of the Groups sales are derived from outlets located on the high street (main street), which is a sector that has seen substantial growth in the United
Kingdom over the last 10 years, as local planning and licensing authorities have allowed more city/town center properties to be used for licensed premises. As a result of this rapid expansion in the number of pubs and venues on the high street,
there are considerably more outlets competing for the same number of customers, which typically leads to rival pub operators aggressively reducing prices to try and win more customers. Recently, the number of new outlets opening on the high street
has been very limited, but if such market conditions were to reverse and pricing activity were to continue, this could have a material adverse effect on the Groups
business operations and prospects.


The Groups activities are affected by a number of fiscal-related
matters

The Groups activities
      are affected by a number of fiscal-related matters. These matters include
      duty on alcoholic beverages, property rates, VAT, other business taxes
      and the availability of duty harmonization to travelers between EU countries.
      Changes in legislation which affect all or any of these matters may adversely
affect the financial performance of the Group.


Changes in gaming regulations may affect the Groups
revenue

Changes to current gaming
      regulations will come into effect from September 2007 as a result of the
      Gambling Act 2005, which was passed on April 8, 2005. The new legislation
      will include changes to the operation of AWP machines (amusement machines
      with prizes, i.e. fruit machines) (AWPs) in pubs. The main area of the current legislation that will change which could impact the Group is that play by under 18 year olds
will be illegal except on low stake and prize machines (although the Group already complies with a voluntary code to this effect). Other changes in the Gambling Act 2005 relate to the ability for casino operators to develop larger, regional casinos
(similar to those operating in Las Vegas). Currently, the UK Government proposes to license eight small, eight large and one regional casino which could have an adverse impact on the number of customers using the Groups AWP machines. The
number of regional casinos could possibly be increased (eight were originally proposed), but this is considered to be unlikely until after 2010. There will also be changes to the categories of machines permitted in casinos, licensed betting offices,
bingo halls, amusement arcades, family entertainment centers and motorway service stations, some of which may increase the competitive threat to the Group in respect of gaming. There is also a risk that the legislation may not effectively safeguard
pubs and tenpin bowls in retaining their existing rights in relation to the number of AWPs they are licensed for. However, the Government has confirmed that it is its intention that pubs and tenpin bowls will retain their existing rights. These new
gaming laws could nevertheless reduce the Groups income from AWPs and reduce the number of customers using the Groups
outlets.


Changes in drink driving laws may affect the Groups
revenue

If the Government were
      to carry out a review of the legal blood alcohol limit for drivers and
      opted to reduce the permitted legal blood alcohol limit, it could discourage
      customers from driving to pubs and restaurants. This change could adversely
      affect trading in the Groups rural and suburban pub and pub-restaurant sites and the Groups
income.


12

---



Back to Contents

The EU Physical Agents
      Directive 2001 (the Directive) is currently under discussion
      in the retail industry relating to the regulation of noise in the workplace.
      The Directive imposes reduced noise action thresholds on member states.
      The Government is required to introduce regulations in response to this
      Directive by February 2008 and has recently launched a consultation document
      to which the Company has responded. These
regulations may discourage certain customers from patronizing those pubs whose
      current attraction is music or a less quiet environment. This could lead
      to a reduction in sales at some pubs and reduce the income received by
the Group.


Legislation relating to smoking may affect the Groups
revenue

In November 2004, the Government issued a White
    Paper concerning smoking in public places in England and Wales for consultation.
    It proposed regulations prohibiting smoking in enclosed places  including
    restaurants and pubs that prepare and serve food as from 2008. Under the
    White Paper, premises not preparing and selling food would be permitted to
    allow smoking, although smoking at the bar would be prohibited. In October
    2005, the
Government published the Health Bill, which provided that from Summer 2007, smoking
    would be prohibited in public places, including pubs and restaurants that
    serve food. However, in February 2006, faced with heavy criticism of its
    food based  proposal, the Government gave Members of Parliament (‘MPs’)
    the chance to vote on whether to retain the food based ban, opt for a smoking
    ban in
    all
    pubs
    (except
    private
    members’ clubs) or opt for a total ban in all pubs and private members’ clubs.
    A majority of MPs voted to amend the Health Bill
to legislate for an outright ban in all pubs and private members’ clubs,
which is expected to come into effect in the summer of 2007 (or later if the
Government
    chooses to give businesses more time to adapt).


Prior to the White Paper
      in 2004, the Group, together with other leading pub companies, had announced
      a voluntary initiative progressively to reduce the proportion of space
      in pubs in which smoking would be allowed to a maximum of 20% by 2009.
      Smoking at the bar would be prohibited altogether by the end of 2005. The
      Group  engaged in the consultation following the White Paper, seeking to
    persuade the Government that its objective of reducing smoking would be more
    certainly
    achieved
      if the proposal concerning food was replaced by the industry voluntary
      initiative or a variation of it (for example, separate smoking rooms that
      are unmanned by staff). However, following the publication of the Health
    Bill in October 2005 and faced with the proposal of a food based smoking
    ban, the Group supported a complete
    ban
    on smoking
    in
    all licensed
      premises with no exemptions.


Assuming the
      proposals in the amended Health Bill remain unaltered and become legislation,
      smokers could be discouraged from visiting pubs and restaurants, preferring
      to  drink, eat and smoke at home. When the legislation comes into force,
      the full ban on smoking in all pubs could have an adverse effect on the
      results of the
Groups business. In the meantime, the Group is continuing its implementation
of the voluntary initiative and conducting trials of non-smoking pubs.


In Scotland, the Scottish
      Executive has decided to enact a complete ban on smoking in pubs, and this
      will take effect from March 2006. This could discourage customers who smoke
      from using pubs and this may have an adverse effect on the results of the
      Groups businesses in Scotland which represent 5% of total Group sales.
      The Welsh Assembly may also seek to implement a complete ban on smoking.
      If
      implemented,
      this
      could
      have
      an adverse effect on the results of the
Groups businesses in Wales which represent 5% of total Group sales.


The Group may be adversely affected by changes in supplier dynamics and interruptions in supply or by circumstances adversely affecting business continuity

In recent years, there has been a consolidation in the brewing and distribution industry in the United Kingdom. This consolidation could have the effect of exposing the Group to reliance on a
limited number of suppliers, and those suppliers may be able to exert pressures on the Group that could have the effect of raising the prices paid by the Group for goods bought or delivered, reducing margins and adversely affecting results of
operations.


The Group has entered into agreements with all of its key suppliers. Termination of these agreements, variation of their terms or the failure of a party to comply with its obligations under
these agreements could have a material adverse effect on the operations and financial performance of the Group.


The Group is contractually
      bound to use certain suppliers. As part of its acquisition of the 550 former
      Allied Domecq sites, the Group is contractually bound to purchase a fixed
      minimum volume of Carlsberg-Tetley products until December 12, 2007 (which
      in fiscal 2005, represented 8.5% (by value) of the Groups alcoholic drink purchases). 74% of the Companys soft drinks (by value) are supplied by Britvic. If the Group is unable
to satisfy its minimum purchase volume obligations to a material extent under the Carlsberg-Tetley and Britvic agreements, it is obliged to pay liquidated damages, which if paid could have an adverse effect on the Groups
business.


The interruption or
      contamination of the supply of food and drink to the Groups sites or loss of a key office or part of the Groups IT infrastructure may also affect the
Groups ability to trade.


The Group is a large commercial user of gas and electricity and is therefore subject to fluctuations in utility costs (for example, both gas and electricity costs have risen sharply during the
last 12 months), which could have an adverse effect on the financial performance of the Group.


Seasonality and weather may adversely affect the Groups
business

Attendance levels at
      the Groups pubs and pub-restaurants are generally higher during holiday periods, such as Christmas and New Year, and over bank holidays. Frequenting of pubs and
pub-restaurants is slightly lower during the winter months than in the summer. Attendance levels at the Groups
pubs and pub-restaurants may also be adversely affected by persistent rain or
other inclement weather, especially during the summer months or over the Christmas
period (which are peaktrading times). Inclement
weather could have a negative effect on turnover generated by the Groups pubs and pub-restaurants and, in turn, could have a negative effect on the results of the Groups
operations.


13

---



Back to Contents

The pub industry is subject to varying consumer perceptions and public
  attitudes

In the United Kingdom, consumption
      of alcoholic beverages has become the subject of considerable social and
      political attention in recent years due to increasing Government concern
      over alcohol-related social problems including drink driving, underage
      drinking and adverse health consequences associated with the misuse of
      alcohol, including alcoholism. This heightened focus on alcohol and how
      it is retailed by the licensed trade
(particularly in the high street and city centers), could result in measures
      being taken at a national or local level. Such measures could seek to restrict
      how the Group operates some of its venues (particularly pricing and promotional
      activity) and
this could have a negative effect on the results of the Groups operations. The Government in January 2005 published for consultation a report entitled Drinking Responsibly setting out further proposals building on the new powers
that will exist pursuant to licensing reform. New measures aimed at those who abuse the licensing laws include 24-hour bans for premises that repeatedly sell to underage drinkers, fixed penalty notices and banning orders for individual drinkers who
behave in an anti-social manner and measures (for designated areas) aimed at recovering costs of policing, hospital treatment and street cleaning. Premises deemed to be contributing to anti-social drinking problems would be identified, given a
period of time to tackle the problem, failing which they would be charged a contribution of the associated costs. Even well operated premises in such designated areas could however be required to contribute towards these costs. Currently, a bill
giving effect to these proposals is before Parliament, which, if enacted in its current form, could have an adverse effect on the Groups
cost base.


The Group may fail to evolve its brands, formats and offerings in line
with changing consumer tastes and requirements

Changes in consumer tastes
      in both food and drink (for example, there is heightened awareness of healthy
      eating) and demographic trends over time may affect the appeal of the Groups pubs
and pub-restaurants to consumers, especially if the Group does not anticipate, identify and respond by evolving its brands, formats and offerings adequately and sufficiently promptly to reflect changes in consumer requirements and preferences,
particularly the growth in the eating out market. This could have a negative impact on the Groups
financial performance.


Complaints or litigation from pub customers, employees and third parties
may adversely affect the Group

The Group, or the licensed
      retailing industry, could be the subject of complaints or litigation from
      individuals or groups of pub customers and/or employees and/or class actions
      alleging illness or injury (such as from passive smoking or alcohol abuse)
      or raising other food quality, health or operational concerns, and from
      other third parties in nuisance and negligence. It may also incur additional
      liabilities as a freehold property
owner (including environmental liabilities). These claims may also divert the
      Groups financial and management resources from more beneficial uses. If the Group were to be found liable in respect of any complaint or litigation, this could
adversely affect the Groups results of operations, and also adversely affect
the reputation of the Group or its brands.


The Group is exposed to fluctuations in
  the property market

Around 17% of the Groups retail outlets are short leaseholds which are subject to periodic rent reviews and renegotiation of rents when leases are renewed. The property market may develop
so that rentals may increase such that they affect the economic viability of one or more of such properties. Equally, a downturn in the UK property market may lead to a reduction in the Groups
freehold property values over time.


Competition for high quality managers

The Group hires pub managers to operate all of
    its managed outlets. The Groups outlets compete with other managed
    pub companies to attract high quality managers and some of these companies
    may have greater financial
and other resources than the Group. The Groups major competitors include
JD Wetherspoon, Wolverhampton & Dudley, Greene King, Punch and Whitbread.
If the Group is unsuccessful in convincing both existing and prospective employees
that the overall combination of its properties, services and employment terms
are more favorable than that of its competitors, existing managers may choose
to leave the Group and work for its competitors, and prospective employees may
choose to work for
other companies.


In addition, individuals seeking to enter the
    pub operating business have several alternatives to being employed managing
    a pub, any of which may prove to be more attractive depending on personal
    circumstances. These include acquiring a pub freehold outright or joining
    one of numerous independent leased or tenanted pub companies as a lessee
    or tenant. Licensed restaurants, cafés and bars can also offer attractive
    business opportunities for the type of employee that the Group generally
    employs. The Group may not be successful in convincing prospective employees
    of the benefits of managing its pubs and the Group may fail to hire or retain
    high quality employees as
a result.


Declining sales of beer in pubs in Great
Britain

A significant proportion of the Groups turnover is derived from the sale
  of beer to its customers. In recent years, sales of all beer (by volume) in
  pubs in the United Kingdom have decreased, principally as a result of pub customers
  showing increased demand for non-beer products such as wine and other alcoholic
  beverages, and increased expenditure on food along with a decline in the number
  and proportion of male pub visitors. Growing health and drink driving concerns,
  as well as the ability to purchase canned or bottled beer at lower prices in
  many off-licenses and supermarkets, have also contributed to the downward trend
  in beer sales at pubs. Accordingly, the Groups outlets do and will continue
  to offer a broad selection of non-beer alcoholic drinks, as well as soft drinks
  and a wide range of food, to continue to attract customers. If the Group is
  not ableto grow successfully its other income
  streams for other products, a continued decline in the British beer market
  could have an adverse
effect on the Groups turnover and overall financial performance.




14

---



Back to Contents

National and international food safety scares and health
  issues

The Group is susceptible to localized national
    or international scares as a result of food contamination that can have an
    adverse impact on both the supply and demand of certain food products. For
    example, if there was an international food safety scare,
    there could be an adverse impact on food sales in the Groups food-led
    outlets particularly in its
    Restaurant division. Similarly, if food supplies are interrupted,
    the Company may be forced to consider alternative suppliers or alternative
  products.


Other food hygiene issues may affect the Group,
    either on an outlet by outlet basis, by brand, or across the Group as a whole.
    Negative publicity and the cost of legal proceedings and/or fines relating
    to a hygiene incident in a brand or across the whole Group could have an
    adverse effect
on the Groups financial position.


The outbreak on a national or international level
    of illnesses that can be transmitted human to human (sometimes referred to
    as epidemics or pandemics) may adversely affect the
    Group. Customer demand could fall as a result of large numbers of the population
    contracting the illness or being fearful of contracting the illness. Such
    outbreaks could also impact on the ability of the Group to have sufficient
    numbers of staff to operate
    some or all of its outlets and/or manage the Group's business at the corporate
    center. This could have an adverse effect on the Groups turnover and
    overall financial performance.


IT infrastructure

The Group is reliant on its IT systems and maintains a program of developing
its systems to suit its business requirements. However, there is a risk of systems
failure centrally and at outlet level, either through intrinsic weakness in the
systems themselves or through external power failures. Appropriate back-up systems
are maintained, although it should be noted that it is not always practical or
cost effective to cover every eventuality. A systems failure exceeding seven
days (at outlet level) across all or a large number of outlets could require
manual processes to be used for capturing sale transactions, which would mean
that there would be no electronic transaction audit available after the seventh
day. This could have an adverse impact on the financial performance of the Group.


The Group is exposed to funding risks in relation to the defined benefits under its pension schemes

The Group participates in defined benefit pension schemes (which were closed to new entrants during fiscal 2002). This gives rise to various funding risks for the Group. The main risks
are:


| | (a) | an increase in the amount of contributions
           which are required to be paid to the schemes by the Group in order
           to account for past service benefit deficits and future service benefit
           accruals.Recent legislation allows
           the Pensions Regulator to challenge contribution strategies agreed
           as part of scheme specific funding discussions with trustees, which
           may mean the Group is required to shorten the period over which the
     deficit is funded;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (b) | the schemes are wound up. New regulations
         require that participating employers would be required to contribute
         to a defined benefit scheme which winds up to a level sufficient to
         enable all benefits to be secured through the purchase of annuity contracts;
     and                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (c) | a material increase in the number of members
         in the defined benefit schemes. If the Group acquires new employees
         it would be possible for the Company to re-open the defined benefit
         schemes to provide defined benefit
pensions for new employees.                                                                                                                                                                                                                                               

The above risks are linked
      to the funding level of the schemes, which can be adversely affected by
      a number of factors including: (i) bond yields (low yields mean a pension
      obligation is assessed as having a high value); (ii) long and/or increasing
      life expectancy (which will make pensions payable for longer and therefore
      more expensive to provide); (iii) poor investment performance of pension
      fund investments; (iv) increased
funding volatility as a result of a mismatch in the nature of the assets held
      when compared to the liability of the schemes; (v) adverse annuity rates
      (which tend in particular to depend on prevailing interest rates and life
      expectancy) as these will make it more expensive to secure pensions with
      an insurance company; (vi) clarification of the law that might require
      guaranteed minimum pensions relating to periods of service after May 17,
      1990 and before April 6, 1997 to be equalized as
between men and women; and (vii) other events occurring which make past service
      benefits more expensive than predicted in the actuarial assumptions by
reference to which the Groups past contributions were assessed.


Following the implementation
      of the Pension Protection Fund (PPF) in April 2005, the Group
      is required to pay annual amounts in respect of the PPF levy. In the first
      year, the  amount charged was based on flat rates per member and the total
      paid was £0.28 million. From April 2006, 80% of the PPF levy will
      be risk based, assessed on scheme-specific data. The details of the basis
      of calculation are not yet finalized,  however, the basis of final consultation
      shows that the PPF levy for the year from April 2006 is currently projected
      to be approximately £0.25
million. The final determination will be announced in spring 2006.


An additional uncertainty is
      that changes to the statutory minimum funding requirement came into effect
      from November 2005, which may result in more onerous funding and contribution
      requirements for employers than those which currently apply, through a
      new scheme-specific funding requirement. Recent legislation
      also means that the Pensions Regulator may be required to be notified of
      significant transactions in order to gain pre-clearance. Such clearance
      may include a requirement to increase the level of funding of the deficit
in the short term.


15

---



Back to Contents

As a result of the funding
      deficits in the schemes identified in the latest actuarial valuations as
      at March 31, 2004, the Company agreed to make additional contributions
      to the schemes of £40 million (£20 million of which was paid in December 2004, £10 million of which was paid in October 2005 and £10 million of which will be paid in fiscal year 2007). These contributions are in addition to those agreed at the
time of the Securitization in November 2003, when a total of £55 million was committed (£35 million was paid in November 2003, £10 million was paid in October 2004 and £10
million was paid in October 2005).


Debt, Liquidity and Revenue Risks

The Groups debt carries a number of
      restrictive covenants

In November 2003, the Group
      securitized the majority of its operations and raised £1,900 million through bonds to increase the efficiency of its balance sheet and to return surplus funds
to shareholders. The bond terms include a number of financial and non-financial covenants relating to the Groups business imposing restrictions on some of the Groups
ongoing operations.


Financial covenants establish
      minimum net worth and debt service levels within the securitized business
      and restrict payments to shareholders such as dividends if specified free
      cash flow to debt service levels are not satisfied. Non-financial covenants
      include restrictions on the disposal of mortgaged properties and related
      matters, the disposal of assets other than mortgaged properties, the acquisition
      and substitution of permitted
businesses, capital expenditure, estate management transactions and further positive
      and negative covenants. Breach of these covenants by the Group would constitute loan events of default, which could result in the Groups
      borrowings becoming immediately repayable.


If there were a significant
      deterioration in the Groups trading activities or cash generation,
      the Group would have to service its debt in priority to its equity and
      there is a risk that
it would not be able to make dividend payments.


The Group has a high proportion of fixed overheads and variable revenues

A high proportion of the Groups
      operating overheads and certain other costs remain constant even if its
      revenues drop. The expenses of owning and operating a managed pub or pub-restaurant
      are not significantly reduced when circumstances such as market and economic
      factors and competition cause a reduction in revenues. Owners of leased
      and tenanted estates generally have a lower risk to revenue exposure compared
      with the Group because
the tenant is obliged to pay the negotiated rent. In addition, owners of leased
      and tenanted estates typically have lower fixed costs at operating level
      and at a head office level than the Group.


Accordingly, a significant
      decline in the Groups revenues would have a disproportionately adverse
      effect on its cash flow and ability to make interest and principal payments
      on its
debt.


The Group may face increased costs in insuring its businesses

The Groups insurance
      costs are largely driven by its claims history. A significant deterioration
      in its claims record is likely to impact premium rates available to the
      Group. This could adversely affect the Group by increasing costs or increasing
      its financial exposure to certain risks if a lower quality of cover is
      maintained.


Risks for US Shareholders

Shareholders may not be able to effect service of process in the United
States upon the Group and certain individuals or enforce United States court
judgements against the Group or some of the Groups Directors
and officers

The Company is organized
      under the laws of England and Wales and all of its Directors and executive
      officers are resident outside the United States. Additionally, all of the
      Groups assets and substantially all of the assets of its Directors
      and executive officers are located outside the United States and it has
      no place of business in the United States. As a result, shareholders may
      not be able to effect service of process in the United States against the
      Group
or the Groups Directors or executive officers or enforce the judgement
of a US court against the Groups Directors or executive officers in any
action, including those predicated upon civil liability provisions of the federal
securities law of the United States, either inside or outside the United States.
Further, it may not be possible for shareholders to bring original actions based
upon US federal securities laws in the courts of England and Wales, and there
may be doubt as to the enforceability against the Group, its Directors or its
executive officers in the United Kingdom, whether in original actions or in actions
for the enforcement of judgements of US courts, of civil liabilities predicated
solely upon the laws
of
the United States, including federal securities laws.


The Company intends to terminate its Exchange Act registration

In view of the increasing significant
      and disproportionate costs to the Company, both in terms of external advisers fees
      and senior management time of maintaining a US registration and because
      the registration itself arose as a legacy from the separation from Six
      Continents, the Company intends to examine ways in which it may terminate
      its Exchange Act registration in due course. On July 19, 2005, the Company
      terminated its ADR
program and on August 5, 2005, delisted from the New York Stock Exchange. Holders
      of ADRs were entitled to exchange their M and B ADSs by September 16, 2005
      for the appropriate number of underlying M and B ordinary shares. On September
      19, 2005, the Bank of New York, as depositary for the ADR program, sold
      the ordinary shares in respect of M and B ADSs not submitted for exchange
      by September 16.


16

---



Back to Contents

On February 2, 2006, the Companys shareholders
    approved an amendment to its Articles of Association to allow the Board
    of Directors to require certain US shareholders to sell their ordinary shares
    so that the Company may be certain that the number of its US shareholders
    is below the appropriate threshold to enable it to deregister. The Board
    of Directors is currently considering the implementation of this provision
    and an announcement will be made promptly when a decision is taken to invoke
    it.


If the Company terminates its Exchange Act registration, it will no longer be obligated to file reports with or furnish reports to the SEC, including annual reports on Form 20-F or other
reports on Form 6-K. In addition, it will not be required to disclose financial information in accordance with US GAAP. The Company will continue to provide information to its shareholders in accordance with the requirements applicable to it in the
United Kingdom.


17

---



Back to Contents

ITEM
4.INFORMATION ON THE COMPANY

SUMMARY

M and B Business

The Group is the leading operator of managed pubs, bars and pub-restaurants in the United Kingdom. The Groups high quality, predominantly freehold estate comprises approximately 2,000
sites throughout the United Kingdom and over 40 sites in Germany.


Mitchells & Butlers plc is a public limited company. It was incorporated in Great Britain on October 2, 2002 and is registered in, and operates under the laws of, England and Wales.
Operations undertaken in countries other than England and Wales are under the laws of those countries in which they reside. M and Bs headquarters are in the United Kingdom and its registered address is:


27 Fleet StreetBirminghamB3 1JPEnglandTel: + 44(0) 870 609 3000Internet address: www.mbplc.com


The Group has a wide brand portfolio, with a number of segment-leading and well-established brands providing targeted offers for a variety of consumer groups, locations and occasions.


The following chart depicts how the Groups UK pub and pub-restaurant brands are targeted by location or by primary occasion (drinks or food), together with the number of sites at October
1, 2005 for each:


|            |                                 |  |                              | 
|----------- | ------------------------------- |  | ---------------------------- | 
|            | Drinks-led                      |  | Food-led                     | 
|            |                                 |  |                              | 
|Residential | Ember
          Inns (170)      |  | Vintage
          Inns (198) | 
|            | Sizzling
          Pub Co (169) |  | Harvester
          (128)    | 
|            | Scream
          (87)           |  | Toby
          Carvery (95)  | 
|            | Arena
          (59)            |  | Pub Carveries
          (39) | 
|            |                                 |  |                              | 
|City Center | ONeills
          (77)        |  | All Bar
          One (42)   | 
|            | Goose
          (39)            |  | Browns
          (15)        | 
|            | Edwards
          (25)         |  |                              | 
|            | Flares
          (44)           |  |                              | 
|            |                                 |  |                              | 

The Groups accommodation
      brands (Express by Holiday Inn (see page 61) and Innkeepers Lodge), the tenpin bowling operation (Hollywood Bowl) and the branded bar and brasserie chain in
Germany (Alex) are not shown in the chart above, nor are the Groups franchised pubs included in the numbers above.


Within each quadrant, the relevant brands target different consumer groups or occasions. For example, within residential, drinks-led sites, Ember Inns is for the quiet drink occasion; Sizzling
Pub Co is focused on local drinking with value for money pub food and Scream is aimed at students.


The Group also has over 600 formatted and unbranded pubs and pub-restaurants, which includes those trading under a Business Franchise.


The Group generated operating profits before operating
    exceptional items of £297
    million (including £1 million of operating profit generated by SCPD)
    on revenues of £1,662 million (including £8 million of
revenues from SCPD) in fiscal 2005, delivering a post-tax cash return on cash
    capital employed of over 10%.


Prior to 1989, the involvement of the Group (then part of Bass) in pubs was as part of a vertically integrated brewing and retailing company with regional operations covering both brewing and
pubs. In 1989, Bass was reorganized and, in the process, created a drinks-led retail business with a managed and leased estate of over 7,000 sites. As a result of the Beer Orders, which restricted the number of pubs that brewers could tie to their
products, Bass disposed of over 2,700 pubs by November 1, 1992.


Since 1992, the Group has undergone a major transformation in its operations, with a number of significant acquisitions and disposals during this period and focused investment to reposition its
estate in terms of geography, sales mix and branding.


In realigning its estate, the Group retained the strongest sites from its former Bass estate (approximately 1,100 sites from around 7,400). In 1995, it acquired the Harvester chain from Forte
plc. In 1997, it acquired the Browns chain of seven restaurants. In 1998, Hollywood Bowl was acquired from another Bass subsidiary. In 1998, the Group largely disposed of its leased pub business and acquired the Alex brand in Germany.


18

---



Back to Contents

The Group also increased the size of its estate by acquiring 550 high-potential former Allied Domecq sites, out of approximately 3,500 sites, from Punch (ADR Joint Venture Company) Limited in
1999. In addition, during the last 10 years, it acquired over 350 carefully selected new sites and new builds. In 2001, it sold to Nomura International PLC an estate consisting of 988 smaller unbranded pubs with limited growth potential as managed
pubs.


Over the 10-year period up to October 1, 2005, the Group has realized cash proceeds of over £1,600 million through disposals and has achieved a profit against book value of £152
million on disposals.


On July 19, 2005, the Company voluntarily terminated its ADR program and on August 5, 2005, it delisted from the New York Stock Exchange. The Directors decided to terminate the ADR program and
delist because the listing was a legacy of the Separation and participation in the ADR program had reduced substantially since demerger reflecting the fact the Company does not operate in the US. Holders of ADRs were entitled to exchange their M and
B ADSs by September 16, 2005 for the appropriate number of underlying M and B ordinary shares. On September 19, 2005, the Bank of New York, as depositary for the ADR program, sold the ordinary shares in respect of M and B ADSs not submitted for
exchange by September 16.


In addition, in view of the significant and disproportionate
    costs to the Company of maintaining a US registration and because the registration
    itself arose as a legacy from the separation from  Six Continents, the Company
    intends to examine ways in which it may terminate its Exchange Act registration
    in due course. On February 2, 2006, the Groups
shareholders approved an amendment to its Articles of Association that allows
the Board of Directors to require certain US shareholders to sell their ordinary
shares so that the Company may be certain that the number of its US shareholders
is below the appropriate threshold to enable it to deregister. The Board of
    Directors is currently considering the implementation of this provision and
    an announcement will be made promptly when a decision is taken to invoke
    it.


Further details of the activities of the Group, including geographic and brand segmentation, are set out below.


|UK Market Overview    
|----------------------
|                      
|UK Industry Background

The Group operates primarily in the UK pub sector, which is itself part of the wider drinking out and eating out market, which also includes restaurants, social clubs, nightclubs and fast food
outlets.


The UK pub sector consists of some 60,000 pubs in total, which can be broadly categorized into three distinct business models: managed pubs (around 20% of sites), leased/tenanted pubs (around
50% of sites) and individual, independently owned pubs (around 30% of sites).


Of the Groups sites, 94% are managed. Managed
    pubs are generally owned by a pub company, such as the Group, or brewer and
    operated by a salaried manager and staff employed by the owning  company,
    which prescribes the product range and detail of service style. They tend
    to be larger than leased/tenanted pubs and individual, independently owned
    pubs and have a higher average weekly take, or AWT, which the Company estimates
    is around
£12,000. The Groups managed sites have an AWT of £16,400, significantly
ahead of the typical managed pub AWT.


Leased/tenanted pubs tend to be smaller and are owned by a pub company or brewer but leased to, and therefore operated by, a third party tenant or lessee, who pays rent to the owner, is
generally responsible for the maintenance of the pub, and is normally contracted to purchase from the owner the majority of drink products (in particular, beer) for resale. The Company estimates that these pubs have an AWT of around £3,000 to
£4,000 and are typically more dependent than managed pubs on the sale of draught beer.


Individual pubs (sometimes known as freehouses) are independently owned and operated by a private individual, who is responsible for the maintenance of the pub and retains any profits after the
expenses of running the pub. The owner is free to decide which products to sell.


The UK pub sector is influenced by trends for both
    eating out and drinking out. The value of annual sales in the drinking out
    sector is currently estimated at £28 billion, including VAT.
Expenditure on drinking out has been growing steadily in line with inflation
    for the last 22 years, at an average rate of 5.5% per annum. The Company
    estimates that drink sales in pubs account for almost half of the overall
    drinking out sector, the  balance being made up of drink sales in nightclubs,
    social clubs, hotels and restaurants.


Expenditure on eating out in the United Kingdom
    has been growing steadily ahead of inflation, at a rate of 9.6% per annum
    over the past 22 years. The annual sales value of the eating out sector
    is now estimated at £38 billion, including VAT.


Eating out in pubs has become increasingly popular. In 2003, total food sales by pubs accounted for approximately £6 billion and Mintel estimates that total food sales by pubs will grow to
around £7 billion by 2006.


Historical market trends suggest that drinking out has been less responsive to changes in the overall economy than eating out, being more resilient in economic downturns than the eating out
market, but with eating out showing greater growth during periods of high economic growth. However, the Company believes that during economic downturns, lower priced restaurants (including the Groups pubs and pub-restaurants, where the average
price of a main meal was £6) tend to be more resilient than higher priced restaurants, as customers trade down. Prices in the drinking out market are also now significantly ahead of equivalent prices in the off-trade (supermarkets and other
liquor stores) and therefore drinking out may be more exposed
to changes in the overall economy than in previous downturns. Frequenting of
pubs and pub-restaurants is generally slightly lower during the winter months
than in the summer. Attendance levels may also be adversely affected by inclement
weather, especially during the summer or over the Christmas period, which are
peak trading periods. Attendance levels are generally higher during holiday periods,
such as Easter, Christmas, bank holidays and New
Year.


19

---



Back to Contents

|Key Drivers
|-----------

There are a number of key market drivers shaping the future of the UK drinking out and eating out market:


| | • | economic climate  overall economic growth or decline
    and, in particular, overall changes in the level of consumer expenditure;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | changes in demographics  for example, over the next
    five years, the number of 18-24 year olds (who are a key consumer group for the drinking out market) is forecast to grow by 6% and
the number of persons aged 45 and above (who are a key consumer group for the pub-restaurant market) is forecast to grow by 7%;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | broadened consumer appeal  an increase in the number
    of people visiting pubs from a wider selection of social and demographic groups (including women, families and older people)
    mitigating against a decrease in the frequency of visits by traditional, blue collar male pub users;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | growth in food sales in pubs  food sales are estimated
    to account for over 25% of industry sales, more
    than double the level of 20 years earlier; this is partly due to consumers increasing propensity to eat out, a preference for informal dining and an improvement in the breadth and quality of the pub food offering;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | product trends  sales of alcohol in pubs are rising
    (broadly in line with inflation) and there are continued shifts in demand in the beverages sector, with declining sales of draught
beer in pubs being offset by sales growth in wine, spirits, bottled lagers and soft drinks;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | branding  the growth in branded and formatted sites
    aiming to provide consistency of standards and customer service, with a view to attracting new customers, driving customer loyalty
and increasing frequency of visits;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | competition  the increased number of sites and higher
    levels of investment on the high street (main street) over the last seven to eight years has led to supply outgrowing demand.
This, together with the increased price sensitivity of consumers, continuing price competition amongst licensed retailers on the High Street, and the rising levels of home consumption
(partly due to the widening gap between the on-trade and off-trade price of alcohol) has resulted in an overall increase in competition; and                                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | • | regulation  licensing reform in England and Wales
    (the Licensing Act 2003 which, since its implementation
    in November 2005, has resulted in slightly longer opening hours for many

existing pubs and may restrict the granting of new
licenses, particularly in residential areas) and in Scotland (proposed
by the Nicholson Committee in August 2003, the changes to  licensing law may
result in longer opening hours and restrictions on
certain promotional activities), changes in employment legislation
(including the level of the UK national minimum
wage), changes in the gaming legislation, which may
reduce income from the Groups gaming machines, the forthcoming ban on smoking
in enclosed public spaces (all pubs from summer  2007 in England and Wales and
all pubs in Scotland
from March 2006) and other regulation relevant to the Groups business.
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|Group Strategy
|--------------

The Groups strategy
      is to capitalize and build on its position as the leader in the managed
      pub and pub-restaurant sector in the UK, and to drive returns, cash generation
      and long-term
earnings growth to create value for shareholders.


The Group intends to implement its strategy by aiming
to:


| | • | Provide the best value experience available in the informal eating and drinking-out markets through a combination of a wide range of food and drink, high-quality amenity, excellent service
and good price value;                                              
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                 
| | • | Build on the active repositioning of the business over the past decade towards the faster growing eating-out market by pursuing strong growth in food sales and drinks market share
gains;                                                                      
| |   |                                                                                                                                                                                                                                                                 
| | • | Maximize returns from its £3.5 billion asset base
    by identifying the most appropriate brand or operating format that will generate the highest sales and profits from each trading
property;                                                                
| |   |                                                                                                                                                                                                                                                                 
| | • | Continually evolve and develop its brands and formats in line with customer demand growth trends (particularly towards food, which now represents 31% of retail sales, compared with 11% a
decade ago) in order to attract a wide and growing customer base; and
| |   |                                                                                                                                                                                                                                                                 
| | • | Combine the productivity benefits
          of unit scale with the purchasing and support cost benefits of corporate
    scale.                                                                                                                                 

20

---



Back to Contents

ACQUISITIONS, DISPOSITIONS AND CAPITAL EXPENDITURE

During the past three fiscal years, the Group has:


| | • | invested cash capital expenditure of £167 million, £150
    million and £151
    million in 2005, 2004 and 2003, respectively. Of
    the £167 million spent in 2005, £61 million
was invested in expansionary capital, over 89% of
which was directed at pubs and pub-restaurants in residential locations; and             
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                              
| | • | realized property disposal proceeds of £57 million, £51
    million and £48
    million in 2005, 2004 and 2003, respectively. Disposal
    proceeds of £57 million were achieved from
the opportunistic sale of individual pubs or surplus
pieces of land, taking advantage of the continued buoyancy in the property
market.

21

---



Back to Contents

SEGMENTAL INFORMATION

The Group has two main retail operating segments: Pubs & Bars, focusing on drink and entertainment-led sites, and Restaurants, focusing on food and accommodation-led sites. The other Group
activity is property development, which is undertaken by the SCPD operating segment.


|Geographic Segmentation
|-----------------------

Predominantly all of the Groups turnover and profit arises from operations in the United Kingdom.


|Activity Segmentation
|---------------------

The following table shows turnover and operating profit, before operating exceptional items, by activity and percentage contribution of each activity for each of the last three fiscal
years.


|      |  | Fiscal Year |  |             |  |             |  |       |  | Fiscal Year |  |       | 
|----- |  | ----------- |  | ----------- |  | ----------- |  | ----- |  | ----------- |  | ----- | 
|      |  |             |  |             | 
|2005  |  | 2004        |  | 2003        |  |             |  | 2005  |  | 2004        |  | 2003  | 
|      |  |             |  |             |  |             |  |      
|(%)   |  | Turnover    |  | (£ million) | 
|      |  |             |  |             |  | Retail      |  |       |  |             |  |       | 
|57.6  |  | 58.5        |  | 58.1        |  | Pubs & Bars |  | 957   |  | 913         |  | 873   | 
|41.9  |  | 41.1        |  | 40.8        |  | Restaurants |  | 697   |  | 641         |  | 614   | 
|      |  |             |  |             |  |             |  |       |  |             |  |       | 
|99.5  |  | 99.6        |  | 98.9        |  |             |  | 1,654 |  | 1,554       |  | 1,487 | 
|0.5   |  | 0.4         |  | 1.1         |  | SCPD        |  | 8     |  | 6           |  | 17    | 
|      |  |             |  |             |  |             |  |       |  |             |  |       | 
|100.0 |  | 100.0       |  | 100.0       |  | Total       |  | 1,662 |  | 1,560       |  | 1,504 | 
|      |  |             |  |             |  |             |  |       |  |             |  |       | 

|2005  |          | 2004                                                                |  | 2003        |          |             |  | 2005 |  | 2004 |  | 2003 | 
|----- | -------- | ------------------------------------------------------------------- |  | ----------- | -------- | ----------- |  | ---- |  | ---- |  | ---- | 
|      | Restated | Restated                                                            |  |             | Restated | Restated   
|      |          |                                                                     |  |             |          |             |  |      |  |      |  |      | 
|(%)   |          | Operating profit
    before
    operating exceptional items(i) (ii) |  | (£ million) |         
|      |          |                                                                     |  |             |          | Retail      |  |      |  |      |  |      | 
|60.6  |          | 63.4                                                                |  | 64.7        |          | Pubs & Bars |  | 180  |  | 173  |  | 172  | 
|39.1  |          | 36.2                                                                |  | 34.5        |          | Restaurants |  | 116  |  | 99   |  | 92   | 
|      |          |                                                                     |  |             |          |             |  |      |  |      |  |      | 
|99.7  |          | 99.6                                                                |  | 99.2        |          |             |  | 296  |  | 272  |  | 264  | 
|0.3   |          | 0.4                                                                 |  | 0.8         |          | SCPD        |  | 1    |  | 1    |  | 2    | 
|      |          |                                                                     |  |             |          |             |  |      |  |      |  |      | 
|100.0 |          | 100.0                                                               |  | 100.0       |          | Total       |  | 297  |  | 273  |  | 266  | 
|      |          |                                                                     |  |             |          |             |  |      |  |      |  |      | 

|    
|----
|    
|(i) 
|(ii)
|    

22

---



Back to Contents

PUBS & BARS

|Overview
|--------

The Pubs & Bars division comprises the Groups
       drinking out and entertainment-led sites. As at October 1, 2005, it had
      1,267
    managed sites, 695 of which were branded and 572 unbranded. The Pubs &
    Bars Division reported sales of £957 million and operating profit before
    operating exceptional items of
    £180 million in fiscal 2005.


The table below shows the number of the Groups
  pubs and bars at the end of each of the last three fiscal years:


|                          |  |  |       |  |  | Fiscal Year |  |  |       | 
|------------------------- |  |  | ----- |  |  | ----------- |  |  | ----- | 
|                          |  |  |      
|Pubs & Bars               |  |  | 2005  |  |  | 2004        |  |  | 2003  | 
|                          |  |  |       |  |  |             |  |  |       | 
|Ember Inns                |  |  | 170   |  |  | 170         |  |  | 159   | 
|Sizzling Pub Co           |  |  | 169   |  |  | 156         |  |  | 125   | 
|Scream                    |  |  | 87    |  |  | 90          |  |  | 91    | 
|ONeills (i)             |  |  | 77    |  |  | 81          |  |  | 86    | 
|Arena                     |  |  | 59    |  |  | 61          |  |  | 57    | 
|Goose                     |  |  | 39    |  |  | 39          |  |  | 41    | 
|Edwards                  |  |  | 25    |  |  | 28          |  |  | 35    | 
|Hollywood Bowl            |  |  | 25    |  |  | 24          |  |  | 23    | 
|Flares/Reflex             |  |  | 44    |  |  | 37          |  |  | 32    | 
|                          |  |  |       |  |  |             |  |  |       | 
|Total branded sites       |  |  | 695   |  |  | 686         |  |  | 649   | 
|Unbranded sites (managed) |  |  | 572   |  |  | 631         |  |  | 738   | 
|                          |  |  |       |  |  |             |  |  |       | 
|Total managed sites       |  |  | 1,267 |  |  | 1,317       |  |  | 1,387 | 
|Business Franchise (ii)   |  |  | 104   |  |  | 75          |  |  | 18    | 
|Leased sites              |  |  | 11    |  |  | 12          |  |  | 12    | 
|                          |  |  |       |  |  |             |  |  |       | 
|Total                     |  |  | 1,382 |  |  | 1,404       |  |  | 1,417 | 
|                          |  |  |       |  |  |             |  |  |       | 

|    
|----
|(i) 
|(ii)

The Groups Brands

The Groups key brands in the Pubs & Bars
  division are:

| | Residential                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                           
| | Ember Inns Ember Inns are local pubs retaining their individual name, presented
      in a contemporary style and offering high quality drink, food and service.
      They are normally in prominent locations, with extensive car parks, in residential
      areas, and target a wide range of adults.
| |                                                                                                                                                                                                                                                                                                           
| | Sizzling Pub Co Sizzling Pubs are also generally based in residential areas and aim
      to offer a great local drinking pub serving value for money
      food on hot (sizzling) skillets. Sizzling Pubs target those aged 25 and
      above and also cater for families.                           
| |                                                                                                                                                                                                                                                                                                           
| | Scream Scream is the leading student pub brand in the United Kingdom and
      is located on or near university campuses and lodgings. It offers students
      significant savings through a student discount card, the Yellow Card.                                                                    
| |                                                                                                                                                                                                                                                                                                           
| | City/Town Center                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                           
| | ONeills Management believes that ONeills is the largest Irish
      bar brand in the world and aims to offer the lively and fun atmosphere of
      the Craic. It is located in city/town centers and also on suburban
      high streets. ONeills is targeted toward 18-35 year olds.           

23

---



Back to Contents

|                      | Bowling                                                                                                                                                                                                                                                                          
|--------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                      |                                                                                                                                                                                                                                                                                  
|                      | Hollywood Bowl Hollywood Bowl offers tenpin bowling, food, drink and amusement games
      facilities in a family-friendly environment. Hollywood Bowls target
      audience consists of families, young people (aged 14-35), corporate groups
      and league bowling clubs.
|                      |                                                                                                                                                                                                                                                                                  
|Unbranded Pubs & Bars

Unbranded pubs and bars include individual classic
    pubs distinct in their own right (i.e. due to architecture, history
    or being close to a tourist attraction), pubs grouped as a common operating
    format (which do not display a brand name, but have similar characteristics,
    e.g., menus and drinks stocking policy), individual nightclubs, gay pubs and
    other sites, which are well known locally due to their location or popularity.
    There are currently no plans to convert these sites, as the Company considers
    that they can achieve their maximum potential by remaining as unbranded sites.
    In addition, there are other unbranded pubs and bars which are being evaluated
    by management and which include sites currently identified for future conversion
    to the Groups brands or formats.


| | Business Franchises
| | -------------------

The Group has developed a system of Business Franchises,
    whereby it enters into a support agreement with a third party under which,
    for an annual fee, the Group provides goods and services (such as IT systems,
    menu support, telephone helpdesk and the ability to participate in bulk purchasing
    carried on by the rest of its estate). Broadly these are divided into true
    franchises and unbranded business franchises run by individual entrepreneurs.
    The Group retains ownership of the property and leases it for commercial rent.
    As at October 1, 2005 there were 104 franchises in operation and the Group
    has plans to transfer a further 24 sites to Business Franchises in fiscal
    2006.


| | Leased Sites
| | ------------

The Group continues to lease to third parties a
  small number of pubs which it decided to retain on the disposal of its leased
  estate. These pubs may be converted to managed pubs or Business Franchises once
  the leases expire.


RESTAURANTS

Overview

The Restaurants division comprises the eating out
    and accommodation-led sites and includes 421 branded pub-restaurants such
    as Vintage Inns, Harvester and Toby Carvery, 71 unbranded pub-restaurants
    in residential areas and 57 brasserie restaurants in UK city/town centers
    under the brands of All Bar One and Browns. There are also 42 sites in Germany,
    all but one of which are under the Alex brand. Express by Holiday Inn and
    Innkeepers Lodge offer midscale/budget accommodation and are generally
    located adjacent to pub-restaurants. Management and financial reporting are
    integrated with the pub-restaurant.


In fiscal 2005, the Restaurants division reported
       sales of £697 million and an operating profit before operating exceptional
       items of £116
       million.


The table below shows the number of the Groups
    restaurants at the end of each of the last three fiscal years:


|Restaurants        | 2005 |  | 2004 |  | 2003 | 
|------------------ | ---- |  | ---- |  | ---- | 
|                   |      |  |      |  |      | 
|Vintage Inns       | 198  |  | 206  |  | 203  | 
|Harvester          | 128  |  | 132  |  | 142  | 
|Toby Carvery       | 95   |  | 85   |  | 74   | 
|All Bar One        | 42   |  | 46   |  | 49   | 
|Browns             | 15   |  | 15   |  | 15   | 
|Alex (Germany) (i) | 42   |  | 42   |  | 43   | 
|                   |      |  |      |  |      | 
|Branded            | 520  |  | 526  |  | 526  | 
|Unbranded (ii)     | 71   |  | 76   |  | 110  | 
|                   |      |  |      |  |      | 
|Total              | 591  |  | 602  |  | 636  | 
|                   |      |  |      |  |      | 

|    
|----
|(i) 
|(ii)

Accommodation is operated and managed by the associated
    restaurant. Accordingly, Express by Holiday Inn is no longer shown as a separate
    brand within Restaurants, and has been removed from the fiscal 2004 and 2003
    comparatives to reflect this analysis. For the same reason, Innkeepers
    Lodge continues to be excluded from the table.


The Groups Brands

The Groups major UK restaurant brands are:


| | Residential
| | -----------

24

---



Back to Contents

| | Vintage Inns These are traditional food-led country pubs serving freshly cooked
      food and a range of high quality wines at reasonable prices. They display
      the individual pub name with subtle branding on menus and signage.                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                           
| | Harvester Harvesters are pub-restaurants in suburban roadside locations, principally
      targeting families. They offer a country setting and are well
      known for Spit Roast Chicken, Smoked Ribs and Salad Cart.                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                           
| | Toby Carvery Toby Carvery is the leading brand in the UK carvery sector (in terms
      of number of sites and sales) and aims to offer a good value
      varied menu of roasts and other traditional dishes. The sites are generally
      in suburban roadside locations and are aimed at a wide range of age groups
      and Sunday lunch diners. 
| |                                                                                                                                                                                                                                                                                                                                                           
| | City/Town Center                                                                                                                                                                                                                                                                                                                                          
| |                                                                                                                                                                                                                                                                                                                                                           
| | All Bar One Classic cosmopolitan bars serving food and drink in a clean, bright
      contemporary environment, positioned in city center locations (primarily
      in London). All Bar Ones target audience consists of metropolitan
      professionals (especially women).                                                                          
| |                                                                                                                                                                                                                                                                                                                                                           
| | Browns The Group acquired the Browns chain of seven restaurants in 1997.
      Browns restaurants are located in city centers around the United Kingdom
      and aim to offer casual, elegant, brasserie dining all day, often in landmark
      architectural buildings. The target audience consists of metropolitan professionals
      and tourists.
| |                                                                                                                                                                                                                                                                                                                                                           
| | Accommodation                                                                                                                                                                                                                                                                                                                                             

The Group has 108 sites which offer accommodation
    above or adjacent to the pub-restaurant or pub with around 4,000 rooms. The
    accommodation offer is branded as either Express by Holiday Inn or Innkeepers
    Lodge.


Unbranded Pub-Restaurants

There are currently 71 unbranded pub-restaurants,
    all of which are in residential areas. These are predominantly pub carveries
    and premium country dining sites.


Germany

The Group acquired the Alex business in 1998 (as
    an initial trial in transferring its branded chain licensed retail expertise
    to Germany, the European market most similar to the United Kingdom in terms
    of the drinking out sector) and has since expanded it to 41 managed sites.
    There are also five franchised sites. In addition, there is now one All Bar
    One site in Cologne. All the operations in Germany are conducted through the
    Groups German subsidiary, Mitchells & Butlers Germany GmbH. Performance
    and returns have been lower than expected, primarily as a result of poor economic
    conditions in Germany, exacerbated by fixed property costs.


STANDARD
  COMMERCIAL PROPERTY DEVELOPMENTS

The other Group activity is property development,
       which for fiscal 2005 represented 0.5% of the Groups turnover. In
       fiscal  2005, SCPD generated operating profit before operating exceptional
       items of £1
       million on revenues of £8
    million.


SCPD develops and sells land and properties in
    the United Kingdom on a limited scale. It has an existing development stock
    with a book value of around £17 million, including ex-brewery land, depots
    and former leisure retail sites. In addition, SCPD aims to pursue attractive
    opportunities that may arise to redevelop a small number of the Groups
    sites.


ORGANIZATIONAL
  STRUCTURE

M and B is the beneficial owner of all of the equity
    share capital, either itself or through subsidiary undertakings, of the following
    companies, which are principal operating companies of the Group, all of which
    are incorporated in England and Wales, except Mitchells & Butlers Germany
    GmbH, which is incorporated in Germany:


| | Mitchells & Butlers Germany GmbH                       
| | -------------------------------------------------------
| |                                                        
| | Mitchells & Butlers Leisure Retail Limited             
| |                                                        
| | Mitchells & Butlers Retail Limited                     
| |                                                        
| | Mitchells & Butlers Retail (No. 2) Limited             
| |                                                        
| | Mitchells & Butlers (Property) Limited                 
| |                                                        
| | Standard Commercial Property Developments
      Limited

MARKETING

The Group operates a portfolio of brands and formats,
    each of which has a distinct customer, service offer, product range and price
    point. The major marketing activities to drive sales therefore focus on:


25

---



Back to Contents

| | • | maintaining the relevance of brands and formats through the evolution of the range of drinks, menus, pricing activity, design and service innovation;                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                            
| | • | promoting brands and formats through national and local advertising (for example, Hollywood Bowl billboard posters), promotions (for example, ale festivals at Ember Inns, continental
beer festivals at All Bar One) and public relations;
| |   |                                                                                                                                                                                                                                            
| | • | developing new formats to serve new audiences and demand patterns. The Group applies a rigorous brand management structure to its branded business, allied to an investment in consumer
insight; and                                       
| |   |                                                                                                                                                                                                                                            
| | • | developing controlled specific promotional and pricing initiatives targeting the most price-sensitive brands, products and occasions.                                                                                                      



GEOGRAPHICAL ANALYSIS

The Group is well diversified geographically throughout
      the United Kingdom.


An approximate breakdown of the Groups
        UK sales (as a percentage of total UK sales) based on regional sales
    figures in fiscal 2005 is set out below:


|                       | %  
|---------------------- | ---
|                       |    
|South East             | 21 
|Greater London         | 20 
|West Midlands          | 16 
|Yorkshire & Humberside | 10 
|North West             | 7  
|South West             | 6  
|Scotland               | 5  
|East Midlands          | 5  
|Northern               | 4  
|Wales                  | 5  
|East Anglia            | 1  
|                       |    
|TOTAL (i)              | 100
|                       |    

|   
|---
|(i)

Historically, the Group was heavily concentrated in the main UK industrial areas of the North and Midlands. However, following a number of disposals and the acquisition of 550 former Allied
Domecq sites in 1999 to reposition the estate, the Company believes that the Group now has a much more balanced presence across the United Kingdom.


The German business comprises
    the Alex brand and one All Bar One site (which opened in Cologne in fiscal
    2002) and represented around 2% of the Groups sales for fiscal 2005.
    Alex sites
are located in many of the major cities in Germany.


KEY COMPETITORS



The Groups pubs and pub-restaurants compete in a market that has been undergoing significant structural changes in recent years. Some brewers have exited from brewing activities
altogether and sold off their leased and smaller managed pubs to focus on high margin branded assets or other interests, allowing new pub retailing companies to enter the market. In addition, financially leveraged companies have become more common
in pub ownership; around 35% of pubs are now owned by financial institutions or highly leveraged companies, compared with only 2% in 1997.


Following this industry restructuring and consolidation, the Groups key competitors (in the eating out and drinking out market) in the United Kingdom now include:


| | • | operators of managed sites, including Whitbread PLC, Punch Taverns plc, JD Wetherspoon plc, Wolverhampton & Dudley
    Breweries PLC, Greene King plc, Luminar plc Limited and R20
Ltd;                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                           
| | • | lessees/tenants of leased pub estates, including those owned by Enterprise Inns plc and Punch Taverns PLC;                                                                                                
| |   |                                                                                                                                                                                                           
| | • | smaller multiple and single pub operators and independently owned freehouses, clubs, nightclubs, wine bars, gastro pubs, restaurants, entertainment centers and other providers of leisure
facilities; and
| |   |                                                                                                                                                                                                           
| | • | independently operated, single or multiple owned restaurants as well as branded restaurant chains (e.g. Gondola Holdings plc and The Restaurant Group Plc).                                               

The Groups pubs, bars and pub-restaurants also compete with home-based entertainment and the trend toward drinking at home.


26

---



Back to Contents

KEY SUPPLY PARTNERS

Despite the relatively low number of suppliers,
      no one food or drink or leisure supplier to the Group represents more than
      15% of the total value of goods supplied. The Group is also  contractually
      bound to use certain suppliers: as a consequence of the disposal of Six
      Continents former brewing business to Interbrew UK Holdings Limited
      (and Interbrews
subsequent part disposal to Coors), Retail entered into a Beer Supply Agreement
in 2000 to purchase a minimum amount of certain specified products for a term
of five years from that date; this Agreement expired in August 2005. Coors brands
still represent approximately 20% of the Groups alcoholic
drink purchases although under new terms of supply. In addition, as part of the
acquisition of the 550 former Allied Domecq Retailing Limited sites, the Group
is contractually bound to purchase a fixed minimum volume of Carlsberg UK products
until
December 12, 2007 (which in fiscal 2005 represented 8.5% of the Groups
alcoholic drink purchases). The Group has a long-term supply agreement with Britvic
ending in February 2008. Under the agreement, the Group has a minimum purchase
 obligation for Britvic soft drinks. In fiscal 2005 Britvic brands accounted
for 74% of the Groups soft drink purchases.


REGULATORY
      ENVIRONMENT


The sale of alcohol in the United Kingdom is a highly regulated industry governed by the licensing system. Licensing covers most premises where alcohol is sold, such as pubs, off-licenses,
restaurants and supermarkets. This section refers to regulations in the United Kingdom and references herein to Government, Secretary of State, Department of Health, Parliament, or acts of Parliament and regulations are references to the Government,
Secretary of State, Department of Health, or acts of Parliament or other regulations, of the United Kingdom.


Legislation  Licensing Reform

England and Wales

The retail sale of alcohol in England and Wales was, until November 2005, governed by a licensing system set out in the Licensing Act 1964. Pubs  part of the on-trade business
 generally required a full on-license in order to sell alcohol on the premises. The license was generally held by the manager or landlord. That person had to satisfy the licensing authorities that, among other things, he/she was a fit and
proper individual to hold such a license. The license would not be approved if the prospective licensee would have been prevented by other commitments from properly discharging his/her functions as a licensee.


Under the former licensing regime, on-licenses were renewed every three years and could be revoked at any time for serious cause, including violation by the manager or landlord or his/her
employees of any law or regulation, such as those regulating the minimum age of patrons or employees, pub advertising and inventory control.


On November 24, 2005, the Licensing Act 2003 became law. The key changes that have been implemented are:


| |  | • | the transfer of the management and the licensing system from local magistrates courts to local authorities, i.e. from the legal system to the local government system. However, license
holders retain the right of appeal to the magistrates court. While the new regime has not fundamentally changed the regulatory structure of the licensed sector, in practice there are
visible changes because each pub that wishes to vary its hours now has to submit details of its operating plan and all pubs now face greater scrutiny from police, local residents and
other relevant agencies;
| |  | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | • | greater flexibility with respect to pub opening hours, as the former limits on late-night trading have been relaxed for some outlets, mainly for pubs in city and town centers away from
residential areas, although generally to a very limited extent. While longer opening hours will undoubtedly have cost implications, the Group believes that this change may benefit
pubs where there is a demand for an additional hour of trading in the evening, particularly at the weekends; and                                                                                                 
| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | • | a dual system of longer-term premises licenses and personal licenses, which has replaced the previous supplementary licenses described above for entertainment or extra hours. The new type
of premises and personal license are both required to enable the premises to trade.                                                                                                                                                                                                                                                                                                               

Regulations determine many of the practical implications of the new legislation. Premises license fees are calculated by reference to the rateable value of the premises and the nature and
location of the premises (large pubs in city centers, which are predominantly drinks, led pay the highest fees). The premises and personal license fees payable are designed to enable the full recovery of costs for local authorities.


The retail sale of alcohol in Scotland is currently governed by a licensing system set out in the Licensing (Scotland) Act 1976, as amended, and is administered through local authority
licensing boards. There are currently seven different types of liquor license in Scotland, depending broadly upon the category of premises from which the alcohol will be sold (public house, hotel, restricted hotel, off-sale, restaurant, refreshment
and entertainment) in addition to a separate system for clubs. As in England and Wales, licenses must be renewed every three years and can be held by non-natural persons such as limited companies, with an individual nominee named on the
application who has day-to-day responsibility for the licensed premises. Current grounds for refusal of an application include that the applicant (or the person on whose behalf or for whose benefit the premises will be managed) is not a fit and
proper person to be the holder of the license, that the premises are unsuitable or inconvenient for the sale of alcohol, that the sale of alcohol would create a public nuisance or that the license would lead to an
over provision of licensed premises in the locality.
Certain classes of persons may also submit objections to the application to the
licensing board.


27

---



Back to Contents

In parallel with reform in England and Wales, the Scottish Parliament has initiated a review of licensing law under the auspices of the Nicholson Committee. The Nicholson Committees
Report was published in August 2003 and contained a number of proposals for the reform of licensing law in Scotland. Some of the key proposals are:


| | (a) | in line with the proposed English and Welsh reforms, the introduction of a dual system of premises licenses and personal licenses;                                                                                                                                                                                                                                                                                                                                                                                                             
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (b) | the continuation of premises licenses for an unlimited period of time until the premises cease to be used for the purpose for which the license was granted;                                                                                                                                                                                                                                                                                                                                                                                   
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (c) | the abolition of the present system of statutorily permitted licensing hours for a system under which there will be no statutorily prohibited hours, the actual opening hours being authorized by the licensing board based on
individual circumstances and prescribed licensing principles;                                                                                                                                                                                                                                                 
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (d) | the introduction of a condition attached to all premises licenses to prohibit promotional advertising or discounted pricing of alcohol which are aimed at encouraging excessive consumption of alcohol;                                                                                                                                                                                                                                                                                                                                        
|
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | (e) | the introduction of a statutory presumption that persons under the age of 18 have full right of entry into licensed premises, although this may be subject to specific restrictions in the premises license or the applicant
may opt out of the statutory presumption to prohibit persons under the age of 18 from accessing the premises. In addition, the Nicholson Committee recommended that the Scottish Executive should arrange for the introduction of national proof of age
cards to facilitate enforcement of any license conditions.
|

Consultation on the proposed changes to the licensing system has now taken place following the publication of a White Paper in May 2004, and the Licensing (Scotland) Bill was published in early
2005. Although the Bill will be enacted in early 2006, there will be an 18 month transition period that only commences in February 2008, during which time licensees will have to submit applications for new premises and personal licenses, ahead of
the implementation of the new licensing regime in August 2009. In addition to the proposals set out above, the draft Bill currently contains no provisions under which existing pubs are guaranteed at least their existing license rights, which means
the benefits of existing license extensions could be lost when an application for a new premises license is submitted. It is also expected that the Scottish Parliament will introduce a right for licensing boards to impose a minimum selling price for
alcohol in the on-trade.


Gaming Regulations


In fiscal 2005, income from AWP machines represented around 3% of the Groups turnover. The Gaming Act 1968, along with subsequent legislation remains the key source of current gaming
machine legislation which impacts the Group. However, the Gambling Act 2005 was introduced in April 2005 and has an initial impact on gaming machines only. The new Act will become fully effective from September 2007.


Until November 2005, liquor licensed premises were allowed to deploy AWPs with the permission of local Licensing Magistrates, but now the grant of permissions has transferred to local
authorities. The Group does not expect there to be any material impact on its business from this transfer of licensing authority. The current maximum level of stake and prize for a single game is 30p and £25 respectively. The new Gambling Act
is expected to make it illegal from September 2007 for under 18 year olds to play £25 prize AWP machines (these machines will be known in the future at Category C machines), although since 1978 the Group already abides by a
voluntary code to this effect.


Much of the necessary detail around the Gambling Act will be contained in secondary legislation, guidance notes and codes of practice which are being developed by the Government and a new
Gambling Commission in consultation with stakeholders during 2006 and the Group is actively involved in this process. The Government confirmed that pubs and ten-pin bowls will retain existing gambling machine rights. New licensed premises will be
entitled to two AWPs (currently pubs do not have an automatic right to any AWPs) with discretion for local authorities to increase such entitlement, based on national guidance. In addition, the Government has indicated in notes accompanying the
Gambling Act 2005 that Category C machines will retain the existing maximum permissible £25 prize, until a review takes place and the maximum permissible stake will increase from 30p to 50p. The effective date of the stake increase is currently
understood to be September 1, 2007, but the leisure industry is lobbying the Government for an earlier increase in both the stake and prize. Any further deregulation of game payment methods is not expected until September 2007.


The Group continues to believe the Gambling Act will not particularly impact on the business providing existing rights are, as the Government has promised, adequately protected in secondary
legislation, guidance notes and codes of practice. The Group believes that, on balance, the ultimate effect will be broadly neutral.


The European Commission recommended in the White Paper on European transport policy for 2010: time to decide of October 2002 that all countries in the EU adopt the same drink and
drive limit of 0.5mg/ml blood alcohol concentration. A lower level of 0.2mg/ml would be adopted for younger and inexperienced drivers. It is not known if or when an EU directive might come into force. The current legal limit in the United Kingdom is
0.8mg/ml (Road Traffic Act 1988, section 11(1) and (21)) and as car drivers and passengers account for 40% of pub visits, any such change to the legal limitmay
discourage customers who drive to pubs from visiting pubs. This change to the
legislation could affect trading in the Groups rural and suburban pub and
pub-restaurant sites.


28

---



Back to Contents

The Working Time Regulations
      1998 (the Regulations) came into effect on October 1, 1998 and control the hours that employees are legally allowed to work. Under the Regulations,
workers may only be required to work a maximum 48-hour week (although they can choose to opt out and work longer if they wish). The Regulations also lay down rights and protections in areas such as minimum rest periods, days off and paid leave. Many
of the Groups employees are covered by the Regulations and most of its licensed house managers have signed voluntary opt outs which allow them to work longer than the average 48-hour week prescribed by the Regulations. Although the
Government has successfully argued for the retention of the UKs opt out in its current form for the next two to three years, in future, if the opt out remains at all, it is likely to be a much more restricted form and the conditions relating
to the individuals consent to opt out will be tightened.


Under the Part-Time Workers (Prevention of Less Favorable Treatment) Regulations 2000, part-time workers can claim the same rights as full-time workers. Similar provisions apply to employees
employed under fixed-term contracts under the Fixed-term Employees (Prevention of Less Favorable Treatment) Regulations 2002. Employees engaged under fixed-term contracts can claim the same rights as employees engaged under permanent
contracts.


Staff costs have increased
      in both pubs and pub-restaurants following the introduction of the National
      Minimum Wage of £3.60 per hour in 1999, which increased to £3.70 in 2000, to
£4.10 in 2001, to £4.20 in 2002, to £4.50 in 2003, to £4.85 in 2004 and to £5.05 from October 1, 2005. The Low Pay Commission is due to recommend new pay levels to the Government in March 2006 for implementation in October
2006 and it is expected that it will recommend a further increase to £5.35 per hour. Historically, the Group has managed to partly offset increases in National Minimum Wage costs against increased labor productivity, i.e. through training,
larger sites and more efficient staff rostering. The Groups sales per staff
hour have increased by some 14.5% during the past four years. However, further
increases in productivity will be required to overcome further increases in National
Minimum Wage


Regulations covering
      food hygiene have raised standards in the food retailing industry. The
      regulations have had their greatest effect on smaller, independent restaurant
      outlets that had to incur additional costs to comply with the new standards.
      Management believes that all of the Groups sites comply with current
      and forthcoming UK Food Regulation Standards as a result of rigorous training,
      detailed manuals, full traceability and regular independent environmental
health audits.


The EUs Physical Agents Directive 2001 (the Directive) is currently under discussion in the retail industry relating to the regulation of noise in the workplace; the current
UK noise limit for workplaces is 90 decibels but if the Directive were to come into effect that limit would be reduced to 85 decibels, representing a significant change. The Groups
sites, especially those which play loud music and have other live entertainment,
could be affected by this proposed change in the law. The noise levels from just
conversation in a busy pub can reach 87 decibels. To legislate for the Directive,
the Government recently introduced The Control of Noise at Work
Regulations 2005, which will come into force on 6 April 2006 (April 2008 for
the leisure/retail industry).


In the UK, there is
      currently a charter on smoking in public places such as restaurants and
      pubs, which has been agreed between the Department of Health and leading
      hospitality industry groups. This charter, though not law, is supported
      by the Government which asked the licensed leisure industry to ensure that
      50% of licensed premises were compliant with it by December 2002, and that
      35% of those had either no smoking areas or
adequate mechanical ventilation.


The Group is in compliance
      with the Governments request in respect of the charter. As part of
its support for the charter, the Group has taken steps to ensure that:


| | (a) | investment schemes include requirements
    regarding charter compliance;
| | --- | -------------------------------------------------------------------------
|
| |     |                                                                          
| | (b) | all new sites will be signed up to the charter;
    and                  
|
| |     |                                                                          
| | (c) | management training courses will cover the
    principles of the charter.
|

Prior to the issue of
      the Governments White Paper on public health, the subsequent Health
      Bill and the announcement of the Scottish Parliament concerning smoking,
      in autumn 2004 the Group  announced its own policy on smoking as part of
      an industry-wide initiative to increase the prevalence of no smoking areas
      in the UKs pubs. The aim was to transform pubs into primarily no-smoking
      venues, with restricted and progressively  reducing smoking areas. Under
      the policy, smoking at the bar was banned with effect from December 2005,
      although the vast majority of the Groups
estate already had banned smoking at the bar prior to this. Also, the Group now
      operates a policy that a minimum of 50% of restaurant/dining area space
      is
      non-smoking. In addition, under the initiative, from December 2005, smoking
      areas were
      to be restricted
to a maximum of 65% of trading floor space, reducing to 20% by December 2009.


29

---



Back to Contents

In England and Wales,
      there has been a Governmental consultation exercise on legislation in respect
      of smoking in public places, which led to the publication of a White Paper
      on public health by the Government in November 2004. In October 2005, the
      Government published the Health Bill which stated that, from summer 2007,
      smoking would be banned in pubs in England and Wales that prepare and serve
      food. As food is prepared and served in
the vast majority of the Groups premises the ban (as originally proposed
by
the
Government)
would have applied to the vast majority of the Groups estate, which may
have discouraged smokers from using the Groups
pubs and
pub-restaurants.


In response to the White
      Paper, there was widespread opposition to the Governments
      proposals and popular support for an all out ban in all enclosed public
      places, in line with Scotland and various other countries in the world.
      The Group (amongst others in the industry) lobbied the Government to modify
      its proposals by either adopting the industry initiative or failing that
      dropping the use of food
as the deciding factor in whether or not to allow smoking, and instead allow
      smoking in separate rooms with full ventilation. Once it was clear that
      the industry initiative did not find favor and that the Government was
      continuing to propose a food based ban as set out in the Health Bill put
      before Parliament, the Group publicly supported a complete ban on smoking
      in all licensed premises without exemptions in preference to the Governments
food based ban.


As expected, in the
      face of substantial political pressure, the Government gave MPs the chance
      to vote on whether to retain the food based ban, opt for a smoking ban
      in all pubs except private members clubs or opt for a total ban in
      all pubs and private members clubs. MPs voted in favor of an outright
      ban in all pubs and private members clubs in England. The Government originally
    indicated that
    the
      new legislation would come into effect in the summer of
2007, although this could be delayed until 2008 to give businesses more time
      to prepare for the ban. Given the experience of pub companies in other
      countries in which smoking in pubs and enclosed spaces has been banned,
      it may be some time following the implementation of any potential ban before
      the likely impact on the Groups operations or financial condition
      can be properly assessed. In the meantime, the Company is currently implementing
      most aspects of the voluntary initiative outlined above. The  Company has
      trialed no-smoking pubs in order to learn more about the impact on the
      business
      of a ban on smoking and is continuing to invest in the external areas of
  pubs in order to offer choice to customers who wish to smoke. In Scotland, the Scottish Parliament announced in 2005 that it intends
to legislate for a complete ban on smoking in all pubs, restaurants and work
places (all confined public places). The legislation will be introduced in March
2006, using the Scottish Parliaments devolved power to introduce its own
laws on public health. Fines of up to £3,600 could be levied against infringers,
namely pub customers and pub management. It is too early to say what the  impact
of such a ban could have on the Groups outlets that are located
in Scotland, which represent 5% of total Group sales. Whilst the Group is already
preparing for the full ban in Scotland, there is still a risk of some loss of
business, at
least in the short term. As regards Wales, which represents 5% of total Group
sales, the
Welsh
Assembly
is
expected
to
vote
on whether smoking should be banned.


Alcohol Harm Reduction Strategy and the Governments Proposals
on Responsible Drinking

On March 15, 2004, the
      Government issued its National Alcohol Harm Reduction Strategy based on
      consultation carried out in 2003/04. The aim of this strategy is to prevent
      any further increase in alcohol-related harms in England and Wales and
      it contains a number of voluntary measures that aim to forge new partnerships
      between the health and police services, the drinks industry and local authorities
      and their communities. The strategy has
included a campaign of test purchasing by the police and trading standards officers
      during summer 2004 to check whether both the on trade and the off trade
      were selling alcohol to those under 18 years of age. A further campaign
      of test purchasing also took place over the 2004 Christmas period. The
      Government proposes to take stock in 2007 of the effectiveness of the voluntary
      approach and may take additional steps, including legislation, if necessary.
      On January 21, 2005 the Government
announced a further series of proposals to supplement the new powers that will
      exist under the new licensing regime and the National Alcohol Harm Reduction
      Strategy. The proposals aim to give both the police and local authorities
      greater powers to deal with excessive drinking and underage drinking. The
      proposals include tougher sanctions being imposed on individuals who commit
      alcohol and disorder related offences, 24-hour banning orders on premises
      selling alcohol where such premises
repeatedly sell to underage drinkers, and powers for recovery of costs from pubs
      within areas of greatest disorder by introducing Alcohol Disorder Zones. The Government has supported the licensed trade to the pub industry and launching a
code of practice aimed at banning irresponsible drinks promotions that encourage speed drinking and excessive consumption. The Group already has its own such Code of Practice in place. This Code of Practice is available on the Groups website.
The Government has produced a draft Bill giving effect to its proposals and this is currently before Parliament with possible implementation during the course of 2006. It is too early to assess the impact the Governments proposals, if
implemented in their current form, may have on the regulatory environment in which the business operates or the impact that, if implemented, they would have on the results of the Groups
operation or financial condition.


30

---





Back to Contents



ENVIRONMENTAL POLICY


The Group recognizes
      that it is part of a wider community of employees, shareholders, customers,
      suppliers and others and recognizes that it has a responsibility to act
      in a way that respects the social, economic and environmental wellbeing
      of the wider world. Its business conduct guidelines set out the standards
      of behavior expected from those working for the Group. The Groups Environmental and Social Responsibility policy is
available on the Groups website.


It is not possible to
      forecast the overall Group expenditure to comply with environmental laws
      and regulations; this reflects the difficulty in assessing the changing
      nature of laws and regulations. The Group expects, however, in light of
      its control procedures backed by insurance cover currently available, that
      it should be in a position to restrict such expenditure so that, although
      it may be considerable, it will be unlikely to
have a material adverse effect on the Groups financial position or results
of operations.


TRADEMARKS


The Group owns a substantial number of registered service marks covering various aspects of its brands. The Company believes that its significant service marks are protected in all material
respects in the markets in which it currently operates.


PROPERTY, PLANTS AND EQUIPMENT


Group companies own and lease property primarily in the United Kingdom. Over 99% of the net book value of land and buildings at the end of fiscal 2005 was in the United Kingdom. Approximately
91% of the properties by value were directly owned, with 4% held under leases having a term of 50 years or longer. Group properties include managed pubs, restaurants, leisure venues and its own
corporate offices. The Company believes that no single property is material to its operations or
financial position.


In accordance with UK
      GAAP, properties are recorded in the balance sheet at cost or valuation
      less depreciation. Financial Reporting Standard 15  Tangible Fixed Assets was
      implemented by the Group with effect from October 1, 1999. The transitional
      rules of this standard have been followed permitting the carrying values
      of properties as at October 1, 1999 to be retained. The most recent valuation
      was undertaken in the
year ended September 30, 1999 and covered all properties then owned by the Group,
      other than leasehold properties having an unexpired term of 50 years or
      less. The valuations were undertaken by external valuers and the basis
      of valuation was predominantly existing use value and had regard to trading
potential. Revaluations would not be permitted under US GAAP.


ITEM 4A.      UNRESOLVED
      STAFF COMMENTS

Not applicable.


31

---



Back to Contents

ITEM 5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS

|INTRODUCTION
|------------
|            
|Overview    

Mitchells & Butlers
      is the leading operator of managed pubs and pub-restaurants, with an estate
      of approximately 2,000 sites
  at October 1,  2005. The assets are predominantly freehold properties with
    a total net book value of £3.5 billion. The managed estate, comprising
      1,858 pubs,  is biased towards residential locations (70% of the estate)
      with the remainder
  on the High Street. With approximately 3% of the pubs in the UK, the Group
      achieves  around 10% of pub industry sales as it has average weekly sales
      per pub of £16,400,
  which is over three times the industry average.


The UK pub industry consists of some 60,000 pubs
  in total, which can be broadly categorized into three business models: managed
  pubs; leased/tenanted pubs; and individual pubs. Managed pubs are generally
  owned by a pub company or brewer, operated by a salaried manager and with staff
  employed by the pub company which generally also prescribes the product range
  and details of the service style. Managed pubs tend to be physically larger
  than leased/tenanted pubs or independently owned pubs and have higher average
  weekly sales.


The value of annual sales in the drinking-out sector
  in the UK is estimated at £28 billion, inclusive of VAT (Office for National
  Statistics), of which around half is derived from pubs. Over the past decade
  the market has seen a continued decline in draught beer sales but this has been
  offset by growth in wine and soft drinks sales, leaving the drinking-out market
  broadly flat in real terms. Conversely, the eating-out market in the UK has
  grown by a compound annual growth rate of 7% over the past decade to £38
  billion, inclusive of VAT (Office for National Statistics), of which the pub
  market accounts for around £6 billion. This growth is being driven by fundamental
  lifestyle and demographic changes, including the increasing number of women
  in employment; the rise in single households; and the growing spending power
  of the over 50s age group.


Mitchells & Butlers business strategy is to:


| |  | • | Provide the best value experience available
      in the informal eating and drinking-out markets through a combination of
      a wide range of food and drink, high-quality
      amenity, excellent service and good price value;                                                    
| |  | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |   |                                                                                                                                                                                                                                                                                         
| |  | • | Build on the active repositioning of the business
      over the past decade towards the faster growing eating-out market by
      pursuing strong growth in food sales and drinks
      market share gains;                                                                            
| |  |   |                                                                                                                                                                                                                                                                                         
| |  | • | Maximize returns from its £3.5 billion
      asset base by identifying the most appropriate brand or operating format
      that will generate the highest sales and
      profits from each trading property;                                                                          
| |  |   |                                                                                                                                                                                                                                                                                         
| |  | • | Continually evolve and develop its brands and
      formats in line with customer demand growth trends (particularly towards
      food, which now represents 31% of retail sales,
      compared with 11% a decade ago) in order to attract a wide and growing
      customer base; and
| |  |   |                                                                                                                                                                                                                                                                                         
| |  | • | Combine the productivity benefits of unit scale
      with the purchasing and support cost benefits of corporate scale.                                                                                                                                                                 

Mitchells & Butlers aims to grow sales and
  profits, generate higher cash returns and, because pub assets are generally
  valued as a multiple of their cash flows, achieve asset appreciation over time.


Mitchells & Butlers financing approach
  is designed to support this growth strategy, combining an efficient balance
  sheet with appropriate flexibility to continue to develop the business in the
  best interest of shareholders.


Until fiscal 2003, the Company did not constitute
    a separate legal entity but, instead, its businesses comprised part of the
    Six Continents Group. However, the Companys consolidated financial statements
    have been prepared as though it had existed as a standalone group throughout
    the periods presented. While the Company believes that the financial information
    set out in its consolidated financial information for periods prior to Separation
    is an appropriate presentation, this financial information is not necessarily
    indicative of the financial results that might have occurred had it always
    been an independently financed and managed public entity. In particular, the
    Companys businesses historically were funded by Six Continents. Upon
    completion of the Separation, the Company assumed standalone debt. Debt levels
    were increased further in fiscal 2004 on completion of the Securitization
    and the return of £501 million to shareholders.


The Companys consolidated financial statements
    are prepared in accordance with UK GAAP. The financial statements also contain
    a description of how UK GAAP differs from US GAAP and a reconciliation of
    net income and shareholders equity from UK GAAP to US GAAP. This is
    set out in Note 31 of Notes to the Financial Statements.


The acquisition of Six Continents by the Company
    was accounted for as a group reconstruction in accordance with Schedule 4A
    to the Companies Act 1985 and Financial Reporting Standard 6 (FRS 6
    and, together, the Relevant Provisions) using merger accounting
    principles. The strict application of the merger accounting principles in
    the Relevant Provisions would have required the inclusion of the results of
    operations and cash flows of Six Continents as those of the M and B Group
    in these financial statements. However, Six Continents was a subsidiary undertaking
    of the Company for only three days to effect the Separation in an efficient
    manner. This application of the Relevant Provisions would, in the opinion
    of the board of directors, not have given a true and fair view because the
    financial statements would have been misleading. Accordingly, the financial
    statements for 2003 and earlier have been prepared as if M and B Group had
    been demerged from Six Continents and, in accordance with the principles of
    merger accounting, as if the businesses comprising M and B Group had been
    part of M and B Group for all periods presented or, where appropriate, from
    their date of acquisition or to the date of disposal by Six Continents.


32

---



Back to Contents

KEY FACTORS AFFECTING RESULTS
  OF OPERATIONS

|(i) | Consumer expenditure
|--- | --------------------

The turnover and results of the group are affected
    by the level of consumer confidence and expenditure. A downturn in the UK
    economy could result in lower consumer expenditure and therefore lower revenues
    and reduced net income.


|(ii) | Brands, formats and offerings
|---- | -----------------------------

The turnover and results of the group are affected
    by the strength of its brands, formats and offerings. Changes in consumer
    tastes and demographic trends over time may affect the appeal of the Groups
    pubs and pub-restaurants to consumers, especially if the Group does not anticipate,
    identify and respond by evolving its brands, formats and offerings adequately
    and sufficiently promptly to reflect changes in consumer requirements and
    preferences, which could have a negative impact on the Groups financial
    performance.


|(iii) | Regulation
|----- | ----------

The Groups operations are subject to regulation.
      Regulation may be direct, such as Licensing Regulation and national minimum
      wage levels, or indirect such as the proposed legislation on smoking. Further
      changes in regulation could adversely affect results of operations, including
      through higher costs. More restrictive regulations could also lead to increasing
      prices to consumers, which in turn may adversely affect demand and therefore
    revenues and profitability.


|(iv) | Supplier pricing
|---- | ----------------

The results of the Group are affected by the cost
    of supplies received from third parties. Some costs, such as the Groups
    energy supplies are linked to market movements outside of the control of the
    Group. Increasing costs from suppliers could have a negative effect on the
    results of the Groups operations.


|(v) | Seasonality
|--- | -----------

Attendance levels at the Groups pubs and
    pub-restaurants are affected by the weather and the timing of major sporting
    events. Persistent rain or other inclement weather, especially during the
    summer months or over the Christmas period (which are peak trading times)
    could have a negative effect on turnover generated by the Groups pubs
    and pub-restaurants and, in turn, could have a negative effect on the results
    of the Groups operations. Major sporting events, especially those in
    which British teams are successful, can also impact turnover. The absence
    of major events, or the poor performance of a British team could have a negative
    impact on the Groups results.


CRITICAL
  ACCOUNTING ESTIMATES UNDER UK GAAP AND US GAAP

The preparation of financial statements requires
    the use of estimates and assumptions that affect the reported amounts of assets
    and liabilities, the disclosure of contingent assets and liabilities at the
    date of the financial statements and the reported amounts of revenues and
    expenditure of the period. Management evaluates its estimates and assumptions
    on an ongoing basis. Actual results could differ from those estimates.


The Company believes the following critical accounting
    policies require significant judgement and/or the greatest use of estimates.


|(i) | Tangible fixed assets
|--- | ---------------------

Under UK GAAP, the Group has tangible fixed assets
       with a net book value of approximately £3.5 billion at the end of
       fiscal  2005. Under UK GAAP, these assets are held at cost or valuation
       less depreciation
    in accordance with the policy outlined in Note 1 of Notes to the Financial
        Statements. The last valuation of properties was undertaken in 1999 and
       those
    valuations have been retained in the financial statements in accordance with
        applicable UK accounting standards. The Group now has a policy of not
       revaluing
    tangible fixed assets. Under US GAAP, revaluations are not permitted. Under
       both UK GAAP and US GAAP, depreciation is calculated to write off the
       cost
       or valuation,
    less the estimated residual value, on a straight line basis. Changes to the
        Groups policies relating to the revaluation of assets, estimation
        of  useful lives, residual values or other policies could have a material
        effect
    on the presentation of the Groups financial position and results of
     operations. In particular, it is estimated that a change of one year in
    the
    expected useful life of each category of the Groups depreciable fixed
     assets would have an impact of approximately £12 million to £14
      million on annual Group operating profit. Further information relating
     to
    the Groups accounting for tangible fixed assets is provided in Notes
    1 and 31 of Notes to the Financial Statements.


Under both UK GAAP and US GAAP, the carrying value
    of tangible assets is tested for impairment when events or changes in circumstances
    indicate the carrying value may not be recoverable. Under UK GAAP, where indicators
    of impairment exist, the carrying value of an income-generating unit (IGU)
    is assessed by reference to value in use, which is defined as the higher of
    present value of discounted cashflows and net realizable value. Under US GAAP,
    the initial assessment of an assets carrying value is by reference to
    undiscounted cashflows. To the extent that undiscounted cashflows do not support
    the carrying value, the fair value of the asset must be calculated and the
    difference from the current carrying value charged to the profit and loss account. In
  the absence of a triggering event, the Group performs an impairment review exercise
  twice a year; the first at the time of the Groups interim results and
  the second at the year end. To date, there have been no events or changes in
  circumstances that have required the Group to perform detailed impairment calculations
  under either UK GAAP or US GAAP.


33

---



Back to Contents

|(ii) | Goodwill
|---- | --------

Under UK GAAP, goodwill acquired since October
    1, 1999 is capitalized and amortized over its useful economic life. Such goodwill
    is allocated to the IGUs and assessed for impairment as set out above. A decrease
    of one year in the useful economic life of goodwill would result in an additional
    charge of less than £1 million per annum.


For the purposes of US GAAP, the Group adopted
    Statement of Financial Accounting Standard (SFAS) No. 142 Goodwill
    and Intangible Assets with effect from October 1, 2002. In accordance
    with SFAS 142, goodwill is capitalized and not amortized, but tested for impairment
    on an annual basis or on an interim basis when a triggering event occurs.
    As explained in Note 31 of Notes to the Financial Statements, the Group performed
    an evaluation of its goodwill as at October 1, 2005, which has confirmed that
    an impairment charge is not required under SFAS 142.


Changes to the Groups valuation methods and
    assumptions used for the purposes of impairment reviews could have a material
    effect on the presentation of the Groups financial position and results
    of operations, particularly under US GAAP. In performing the SFAS 142 goodwill
    impairment exercise on its annual assessment, the Group applied a range of
    reasonably likely sensitivities to the valuation methods and assumptions.
    The resultant valuations confirmed that no impairment charge is required in
    respect of any of the Groups reporting units.


|(iii) | Pensions
|----- | --------

For UK GAAP purposes, the Group adopted FRS 17
    Retirement Benefits for fiscal 2005, as explained in Notes 1,
    3 and 7 of Notes to the Financial Statements. Under US GAAP, the Group applies
    SFAS 87 Employers Accounting for Pensions as set out in
    Note 31 of Notes to the Financial Statements.


Under both UK GAAP and US GAAP, accounting for
    pensions involves judgement and assumptions to be made regarding uncertain
    events, including, but not limited to, future asset returns, rates of inflation,
    employee and pensioner demographics and discount rates. The Group has determined
    the assumptions it has adopted in discussion with its actuaries and believes
    that they are in line with practice generally. A list of the major assumptions
    used by the Group, many of which are inter-dependent, is set out in Notes
    7 and 31 of the Notes to the Financial Statements. The use of different assumptions,
    and the outcome of events could have a material effect on the presentation
    of the Groups financial position and results of operations. It would
    be impracticable to give the impact of the effect of changes in all of the
    assumptions used. However, and while it can be misleading to look at changes
    in assumptions in isolation, the following disclosures are provided to assist
    in an assessment of the impact of changes in the more critical assumptions.


The pensions cost in the profit and loss account
    is partly determined by assuming an estimated rate of return on assets held
    by the pension plans, most particularly equities. At October 1, 2005, it was
    assumed that equities would outperform fixed interest government bonds by
    3.2 percentage points. A one percentage point change in this assumption would
    impact profit before tax by approximately £7 million under both FRS 17
    and SFAS 87.


In assessing the liabilities of the pension plans,
       an assumption is made regarding future life expectancy. In respect of
      the
    Groups plans at October 1, 2005, an increase of one year in this assumption
     would increase the balance sheet deficit by approximately £41 million
      and decrease profit before tax by approximately £3 million under FRS
      17. Under SFAS 87, profit before tax would be reduced by approximately £5
      million and the minimum pension liability recognized in other comprehensive
      income would be increased
     by
    approximately £40 million.


The rate used to discount the pension liabilities
    is determined by using the rate of return on high quality corporate bonds.
    As at October 1, 2005, a half percentage point decrease in the discount rate
    assumption would increase the balance sheet deficit by approximately £89
    million and reduce profit before tax by approximately £2 million under
    FRS 17. Under SFAS 87, profit before tax would be lower by approximately £8
    million and the minimum pension liability recognized in other comprehensive
    income would be approximately £87 million higher.


A half percentage point increase in the discount
    rate assumption would decrease the balance sheet deficit by approximately
    £79 million and increase profit before tax by approximately £2 million
    under FRS 17. Under SFAS 87 profit before tax would be higher by approximately
    £7 million and the minimum pension liability recognized in other comprehensive
    income would be approximately £77 million lower.


INTERNATIONAL FINANCIAL REPORTING
  STANDARDS

The Group is required to produce its first set
    of audited financial statements in line with International Financial Reporting
    Standards (IFRS) for the 52 weeks ending September 30, 2006. Historically,
    the Group financial statements have been prepared in accordance with UK GAAP.
    The Group is required to publish one year of comparative information, which
    results in a date of transition to IFRS of September 26, 2004.


The adoption of IFRS has no impact on the underlying
    operations, cash flows or debt covenants of the Group. However, the new regime
    may lead to some increased volatility in reported numbers, particularly net
    assets.


The IFRS information presented below has been prepared
    on the basis of current interpretations of all IFRS and International Financial
    Reporting Interpretation Committee (IFRIC) interpretations published
    as at December 7, 2005. These are subject to ongoing amendment by the International
    Accounting Standards Board (IASB) and subsequent endorsement by the European Commission. In addition, the Group may need to review accounting treatments as a result of emerging industry consensus on the practical application of IFRS and further technical opinion. It is possible,
therefore, that the financial information presented below could be modified by the time the Group publishes is first complete set of audited IFRS financial statements for the 52 weeks ending September 30, 2006.


34

---



Back to Contents

IFRS 1 First-time Adoption Choices

IFRS 1, First-time Adoption of International Financial Reporting Standards sets
      out the rules that the Group must follow when it adopts IFRS for the first
      time. Under this standard, the Group is required to establish its IFRS
      accounting policies as at October 2, 2005 and, in general, apply these
      retrospectively to determine the IFRS opening balance sheet at its date
of transition, September 26, 2004.


A full set of the IFRS accounting
      policies that the Group intends to adopt can be found within the investors
section of the Groups website, at www.mbplc.com/ifrs.


IFRS 1 provides a number of optional exceptions to the general principle of retrospective application. Set out below is a description of the significant first time adoption choices made by the
Group.


Business combinations (IFRS 3)

The Group has elected to apply
      IFRS 3 Business Combinations prospectively from the date of
transition to IFRS rather than to restate previous business combinations.


Valuation of properties (IAS 16)

Under IAS 16 Property, Plant and Equipment an
      entity must adopt either a cost or valuation model for valuing its property,
      plant and equipment. Consistent with its approach under UK GAAP, the Group
      has decided to continue with a cost model and has elected to take the exemption
      available under IFRS 1 to use the previous revaluations of its properties
as deemed cost at the transition date.


Share-based payments (IFRS 2)

The Group has elected to apply
      IFRS 2 Share-based Payment only to those equity settled awards
that were granted after November 7, 2002 but not vested at January 1, 2005.


Pensions (IAS 19)

The Group has elected to recognize all cumulative actuarial gains and losses in relation to its defined benefit pension arrangements at the date of transition. Actuarial gains and losses
arising after the transition date are recognized in full in the period in which they occur in a statement of recognized income and expense in accordance with an Amendment to IAS 19. These accounting treatments mirror those of FRS 17, which the Group
adopted for 2004/05 under UK GAAP.


Financial Instruments (IAS 32 and
IAS 39)

The Group had appropriate hedging documentation in place at the date of transition to IFRS and has therefore opted to restate its results for the 53 weeks ended October 1, 2005 under IAS 32 and
39.


The European Commission has
      endorsed an amended version of IAS 39, Financial Instruments : Recognition and Measurement rather
      than the full version as published by the IASB. As the Group is unaffected
by the amendments, its adoption of IAS 39 complies with both versions.


35

---



Back to Contents

Summary of Financial Impacts

The table below sets out the impacts of IFRS on the Group results for the 53 weeks ended October 1, 2005 and Group net assets at October 1, 2005 and September 26, 2004.


|                                          | Profit before    tax and    exceptional    items |      | Profit after tax    and before    exceptional    items |   | Profit after    tax and      exceptional      items |   | Net
    assets |  
|----------------------------------------- | ------------------------------------------------ | ---- | ------------------------------------------------------ | - | --------------------------------------------------- | - | -------------- | -
|                                         
|2005                                      | 2005                                             | 2005 | 2005                                                   |   | 2004                                               
|                                          |                                                  |      |                                                        |   |                                                     |   |                |  
|                                          | (£ million)                                      |     
|Under UK GAAP                             | 195                                              |      | 133                                                    |   | 133                                                 |   | 1,417          |  
|Share-based payments                      | (2                                               | )    | (2                                                     | ) | (2                                                  | ) |               |  
|Leases                                    |                                                 |      |                                                       |   |                                                    |   | (3             | )
|Reversal of dividend accrual              |                                                 |      |                                                       |   |                                                    |   | 37             |  
|Holiday pay accrual                       |                                                 |      |                                                       |   |                                                    |   | (6             | )
|Pensions                                  |                                                 |      |                                                       |   |                                                    |   | (3             | )
|Property, plant and equipment             |                                                 |      |                                                       |   |                                                    |   | (24            | )
|Derivatives                               |                                                 |      |                                                       |   |                                                    |   | (35            | )
|Tax                                       |                                                 |      | 2                                                      |   | (1                                                  | ) | (200           | )
|                                          |                                                  |      |                                                        |   |                                                     |   |                |  
|Under IFRS                                | 193                                              |      | 133                                                    |   | 130                                                 |   | 1,183          |  
|                                          |                                                  |      |                                                        |   |                                                     |   |                |  
|                                          |                                                  |      |                                                        |   |                                                     |   |                |  
|Balance sheet reclassifications :         |                                                  |      |                                                        |   |                                                     |   |                |  
|Property, plant and equipment             |                                                  |      |                                                        |   |                                                     |   | (42            | )
|Intangible assets  computer software     |                                                  |      |                                                        |   |                                                     |   | 16             |  
|Non current assets held for sale          |                                                  |      |                                                        |   |                                                     |   | 9              |  
|Non current pre-payments  lease premiums |                                                  |      |                                                        |   |                                                     |   | 16             |  
|Current pre-payments  lease premiums     |                                                  |      |                                                        |   |                                                     | 1 |                | 1
|Short term investments                    |                                                  |      |                                                        |   |                                                     |   | (70            | )
|Cash and cash equivalents                 |                                                  |      |                                                        |   |                                                     |   | 70             |  
|                                          |                                                  |      |                                                        |   |                                                     |   |                |  



|Earnings per share :           | UK GAAP           |  | IFRS | 
|------------------------------ | ----------------- |  | ---- | 
|                               |                   |  |      | 
|                               | (pence per share) | 
|Basic                          | 26.0              |  | 25.4 | 
|Basic before exceptional items | 26.0              |  | 26.0 | 
|Diluted                        | 25.6              |  | 25.1 | 
|                               |                   |  |      | 

Description of IFRS Adjustments

The above adjustments, which reconcile UK GAAP to IFRS, are explained as follows:


Share-based payments (IFRS 2)

IFRS 2 requires all share options and employee share awards to be expensed in the profit and loss account with the expense measured at fair value at date of grant and generally charged over the
vesting period of the scheme. Under UK GAAP, SAYE schemes were exempt from a charge and the expense recognized in respect of other schemes was based on the intrinsic value at date of grant and charged over the performance period of the
scheme.


The Group has used a combination of Black Scholes, Binomial and Monte Carlo simulation models to calculate fair values depending on the conditions attached to the particular share
scheme.


The additional pre tax charge arising from the adoption
of IFRS 2 is £2 million for the 53 weeks ended October 1, 2005.


Pensions (IAS 19)

The Group will account for pensions under IFRS in the same way as that already applied under UK GAAP (FRS 17). In particular, actuarial gains and losses are recognized in full in the statement
of recognized income and expense. There is, however, a small difference in the valuation of pension scheme assets which are valued at bid price under IFRS rather than mid-market price under UK GAAP.


The impact of this difference is to increase the pension deficit recorded under
  IAS 19 by £3 million at both October 1, 2005 and September 26, 2004 with
  no material effect on the income statement for the 53 weeks ended October 1,
  2005.


Dividends (IAS 10)

Under IAS 10 Events after the Balance Sheet Date,
      dividends declared after the balance sheet date are not recognized as a
      liability.


36

---



Back to Contents

The effect of this change is to increase net assets
  by £37 million at October 1, 2005 and £34
million at September 26, 2004.


Holiday pay accrual (IAS 19)

As a result of the specific guidance in IAS 19, the Group has recognized an
  additional accrual for holiday pay.


The impact is to reduce net
      assets by £6 million at both October 1, 2005 and September 26, 2004
      with no material effect on the income statement for the 53 weeks to October
      1,
2005.


Property, plant and equipment (IAS
16)

Under IFRS, the Group will cease to capitalize certain low value short lived
  assets.


The effect is to reduce net
      assets by £24 million at both October 1, 2005 and September 26, 2004
      with no material effect on the income statement for the 53 weeks to October
      1,
2005.


Financial instruments (IAS 39 and
IAS 21)

IAS 39 Financial Instruments: Recognition and Measurement requires
      all derivative financial instruments to be included on the balance sheet
      at fair value and contains provisions that restrict the use of hedge accounting.
      If hedge accounting cannot be applied, any changes in fair value are reported
      in the profit and loss account. There are no equivalent provisions in UK
GAAP.


The Group uses interest rate
      and currency swaps to fix the interest rate payable on the floating rate
      tranches of its secured loan notes. These derivatives have qualified for
      cash flow hedge accounting since IFRS transition so that changes in fair
      value are recognized in equity in a hedging reserve until such point as the transactions which are being hedged are reflected in the profit and loss account. As these hedging
relationships have been highly effective, cash flow hedge accounting has avoided earnings volatility in the 53 weeks to October 1, 2005 and is expected to do so going forward. However, the value of the Groups net assets at each reporting date
is impacted by the changes in the fair value of the derivatives recorded in the hedging reserve. As a consequence, the Groups net assets have been reduced by £35 million and £10
million at October 1, 2005 and September 26, 2004,
respectively.


Under IAS 21 The Effects of Changes in Foreign Exchange Rates the Groups
      US dollar denominated secured loan notes are translated at period end exchange
      rates with exchange differences passing through the profit and loss account.
      However, as the Group has been able to apply hedge accounting, there is
      an equal and opposite transfer from the hedging reserve that removes the
      earnings volatility that would otherwise
result. Under UK GAAP, the US dollar denominated secured loan notes were translated
at the contracted exchange rates implicit in the underlying hedging arrangements.


Leases (IAS 17)

The Group holds a number of
      properties under operating leases. In accordance with IAS 17 Leases, lease premium payments made on entering into the leases, previously included in
fixed assets under UK GAAP, have been reclassified as current and non current prepayments and amortized over the life of the lease. Amounts reclassified at October 1, 2005 and September 26, 2004 were £17 million and £18
million
respectively. In the income statement for the 53 weeks ended October1,
2005, depreciation of £1 million has been reclassified as lease amortization
with no overall impact on reported profits. In addition, the revaluation previously
attributed to the amount included in fixed assets has been reversed. This has
reduced net assets by £3 million at both October 1, 2005 and September 26,
2004.


IAS 17 requires that the buildings element of leases on land and buildings is considered separately for the purpose of determining whether the lease is a finance or operating lease. IAS 17 also
requires lease incentives to be spread over the full lease term rather than the period to the first rent review. In response to these requirements, the Group has undertaken a review of its leased property portfolio and concluded that no adjustments
are required on transition to IFRS.


Computer software (IAS 38)

Computer software, which is not an integral part of a related item of hardware, is required under IFRS to be treated as an intangible asset. Under UK GAAP, all such software was included in
tangible fixed assets.


The amounts reclassified to
      intangible assets are £16 million at October 1, 2005 and £19 million at September 26, 2004. In the income statement for the 53 weeks ended October 1, 2005,
depreciation of £5 million has been reclassified as intangibles amortization
with no overall impact on reported profits.


Assets held for sale (IFRS 5)

IFRS 5 requires that where the value of an asset will be recovered through a sale transaction rather than continuing use the asset is classified as held for sale. Assets held for sale are
valued at the lower of book value and fair value less costs to sell and are no longer depreciated. Under UK GAAP there was no held for sale classification.


IFRS 5 has been adopted prospectively
      from September 26, 2004 resulting in a balance sheet reclassification of £9
      million at October 1, 2005. There is no effect on the income statement
      for
the 53 weeks to October 1, 2005.


37

---



Back to Contents

IAS 12 Income Taxes requires deferred tax to be provided on temporary differences between the tax base and carrying value of assets and liabilities rather than just taxable timing
differences under UK GAAP. As a result, the Groups opening IFRS balance sheet at September 26, 2004 includes an additional deferred tax liability of £242 million relating to the revaluation of properties and gains previously rolled over
into replacement assets. The equivalent additional liability was £223 million
at October 1, 2005.


In addition, the tax
      effects of the other IFRS adjustments have resulted in a reduction in the
      overall deferred tax liability of £11 million at September 26, 2004 and £23
      million at
October 1, 2005.


IAS 1 Presentation of Financial Statements does
      not contain an equivalent classification for the FRS 3 non-operating exceptional
      items that were shown below operating profit under UK GAAP. Such items,
      which do not relate to the underlying business performance of the Group
      and include profits and losses on the disposal of properties, will now
      be reported in operating profit, but shown as operating exceptional items.
      The Group
will continue to highlight exceptional items by way of a columnar presentation
      on the face of the Group income statement. Exceptional items are those
      items which are separately identified by virtue of their size or incidence
      to allow a full
understanding of the underlying performance of the Group.


While the denominator for basic EPS purposes is calculated in the same way as under UK GAAP, the denominator for diluted EPS purposes is different under IFRS due to the treatment of
contingently issuable shares and the effects of IFRS 2.


For the 53 weeks ended October 1, 2005, under IFRS, the basic and diluted EPS denominators are 511 million shares and 518 million shares respectively. Under UK GAAP, the equivalent figures were
511 million and 520 million shares respectively.


IAS 7 Cash flow statements changes
      the definition of cash used for the preparation of the cash flow statement.
      Under IFRS, cash and cash equivalents include cash at bank and other short
      term deposits and investments with an original maturity at acquisition
      of up to three months. Under UK GAAP, cash was restricted to deposits and
investments repayable on demand.


NEW ACCOUNTING STANDARDS ADOPTED IN 2005


In fiscal 2005 under UK GAAP, the Group has adopted
  FRS 17 Retirement Benefits in full for the first time. In prior
  years, the Group complied with the transitional disclosure requirements of
  this standard. FRS 17 has been adopted in full in light of the introduction
  of International Financial Reporting Standards; the measurement principles
  in the equivalent international accounting standard are similar to those in
  FRS 17. The change in accounting policy therefore provides investors with greater
  clarity of earnings and net assets
going forward.


The full adoption of FRS 17 has resulted in a change in the accounting treatment
  of the Groups defined benefit arrangements. In particular, the net liabilities
  of the pension schemes are included on the balance sheet, current service costs
  and net financial returns are included in the profit and loss account and actuarial
  gains and losses are recognized in the statement of total recognized group
  gains and losses. Further information on FRS 17 is provided in Notes 1 and
  7 of the Notes to the Financial Statements. Previous accounting under SSAP
  24 Accounting for Pension Costs required the charging of regular
  costs and variations from regular cost in the profit and loss account with
  the difference between the cumulative amounts charged and the payments made
  to the pension schemes shown as either a prepayment or creditor on the balance
sheet.


This change in accounting policy has been accounted for as a prior year adjustment
  and previously reported figures have been restated accordingly. In particular,
  restated earnings for fiscal 2004 of £118 million are £7 million
  lower than previously reported and restated shareholder funds at September
  26, 2004 of £1,423 million are £219 million lower than previously
  reported. Further details of the restatements are provided in Note 3 of Notes
to the Financial Statements.


The total pension cost of £14 million included within operating profit
  for fiscal 2005 compares to £45 million which would have been incurred
  under SSAP 24. The SSAP 24 cost would have been higher in fiscal 2005 than
  in fiscal 2004 reflecting the impact of the full actuarial valuations of the
  pension schemes at March 31, 2004. If FRS 17 had not been adopted, shareholders funds
  would have been £200
million higher at October 1, 2005 under SSAP 24.


OPERATING RESULTS

Fiscal 2005 Compared with Fiscal 2004

Accounting period

The 2005 financial year comprises 53 weeks. The comparator
  year, 2004, comprises 52 weeks. Unless stated otherwise, all information quoted
  is on a 53 versus 52 week statutory basis with the exception of like-for-like
  management trading information which is presented on a comparative 52 week
basis, eliminating the results of the extra week in the 2005financial
year. The figures for 2004 have been restated in line with pensions accounting
under FRS 17 which was adopted by the group in 2005.


38

---



Back to Contents

Group

Total sales for the
      year of £1,662 million were up 6.5% on last year including the benefit
      of the 53rdweek
      and  operating profit before operating exceptional items was up 8.8% .
      Like-for-like sales were strong in both the Residential and High Street
      businesses, reflecting
      continued
      market
      share gains.


Consistent with the
      Groups overall strategy, management (and the retail industry in general) considers sales growth and same outlet like-for-like sales growth to be key
operational measures of performance. Same outlet like-for-like sales compares the sales reported by outlets fully operational in both of the fiscal years being compared on a 52 week basis, eliminating the results of the extra week in the
2005 financial year. Effectively the same outlet measure removes the impact of acquisitions and disposals. The performance of uninvested outlets (removing those where expansionary investment of more than £30,000
has been spent in the current or previous year) is also analyzed by management
as follows:


|                 |  | Same outletlike-for-like
    sales growth* |  | Uninvested like-for-like
    sales growth* | 
|---------------- |  | ------------------------------------------ |  | ------------------------------------------ | 
|                 |  |                                            |  |                                            | 
|Residential Pubs |  | 5.7%                                       |  | 3.6%                                       | 
|High Street Pubs |  | 3.3%                                       |  | 2.3%                                       | 
|Total            |  | 4.8%                                       |  | 3.0%                                       | 

|                                                                                                                       
|-----------------------------------------------------------------------------------------------------------------------
|*52
    week basis                                                                                                     
|                                                                                                                       
|Note:Uninvested
        and same outlet like-for-like sales account for 89% and 96% of the estate
        respectively.

Same outlet like-for-like sales increases were driven by the success of ongoing sales and marketing activities. Food and drink volumes were up 9% and 4% respectively, on a same outlet 52 week
basis, with average retail prices unchanged.


SCPD turnover was £8 million against £6
      million in fiscal 2004 primarily through the sale of two developments in
Burton-on-Trent and Bournemouth.


Total operating costs
      and overheads, excluding operating exceptional items, were £1,365
      million in fiscal 2005, on a 53 week basis, compared with £1,287 million
      in fiscal 2004.  Despite the much faster growth of the lower-margin food
      and wine categories, the overall percentage gross margin was broadly maintained,
      with additional purchasing gains being achieved. With strong volume performance
      and further cost efficiencies,
the net retail operating margin was 0.4 percentage points higher than last year,
      having absorbed £17 million of regulatory and energy cost increases.
      As a result, total operating profit before operating exceptional items
      in fiscal 2005, on a 53
week basis amounted to £297 million, compared with £273 million in
fiscal 2004. Operating profit from the retail estate at £296
million was up 8.8% on fiscal 2004 representing an increased net operating margin
from 17.5% to 17.9% and
the 53rdweek.
SCPD operating profit for the year was level at £1 million compared with
the previous fiscal year.


Exceptional operating
      costs of £4 million were incurred during the year relating to the one-off costs of obtaining new licenses for all of the Groups pubs and pub-restaurants as
required by the Licensing Act 2003. The non-operating exceptional profit of £1
million arose on the disposal of pubs, often for alternative use.


The organic sales growth
      in the estate was supported by an investment programme of £167 million in the year. £106 million was invested to maintain the high levels of amenity in the
pubs and the continuing evolution of the Groups brands and formats. The balance of £61 million was spent on expansionary capital projects. During the year, six new pubs were opened and 80 existing pubs were converted to one of the
Groups brands or formats to uplift their sales and profits. In addition, 13 Innkeepers
Lodges were developed on land adjacent to existing pubs.


Net capital investment
      during the year was £110 million as disposal proceeds of £57
      million were achieved from the opportunistic sale of individual pubs or
      surplus pieces of land, taking advantage of the continued buoyancy in the
property market.


Net interest payable and similar items in fiscal 2005 was £102 million compared
with £102
million in fiscal 2004.


The interest on net
      debt in fiscal 2005 was £105 million compared with £101 million (before exceptional interest) in fiscal 2004. The composition of the charge was interest payable of
£116 million (2004 £100 million) in respect of the Groups securitised debt, less £11 million (2004 £9 million) of interest income earned on surplus cash. During the early part of fiscal 2004, the Group also incurred an
interest charge of £10 million in relation to the floating rate borrowings
that were in place before the Securitization. As required by the terms of the
Securitization, interest payable on the securitised debt is totally fixed through
the use
of interest rate and currency swaps.


Following the adoption
      of FRS 17, the Group has reported net finance income in respect of pensions
      of £3 million (2004 £1 million) representing the excess of the
      expected return on the scheme assets over the interest cost of the scheme
liabilities.


39

---

Back to Contents Taxation


The 53 week tax charge in fiscal 2005 represented
an effective rate of 30.7% which compares with 31.0% in fiscal 2004.


The tax charge of £62
      million before exceptional items represents an effective tax rate of 32.0%,
      which is higher than the UK statutory rate of 30% due to non-allowable
      items, in
particular the depreciation of properties.


In fiscal 2005, earnings
      totaled £133 million compared with £118 million in fiscal 2004. Basic earnings per share were 26.0 pence, compared with 21.1 pence in fiscal 2004. Diluted
earnings per share, which reflect the notional exercise of the weighted average number of dilutive ordinary share options outstanding under the Groups
share option schemes, were 25.6 pence in fiscal 2005 compared with 21.0 pence
in fiscal 2004. The increase in adjusted earnings per share was 24.4% . In addition
to the growth in operating profit, earnings per share have benefited from the
share consolidation accompanying the return of funds to shareholders in 2003,
the share buy-back
programme during the current year, and the
53rdweek.


Net cash inflow from
      operating activities of £400 million was £22 million higher than
      in fiscal 2004. This increase was due to increased earnings before interest,
      taxation,
depreciation, amortization and exceptional items of £32 million, a reduction
in working capital inflows of £21 million and a reduction in exceptional
expenditure and pension contributions of £11 million. Interest payments
of £102
million were higher than the prior year due to a full year of the increased level
of debt in place since completion of the refinancing and the return of funds
to shareholders in December 2003. Net tax payments of £43 million were £9

million higher due to the receipt in fiscal 2004 of a refund from HM Revenue & Customs
in respect of prior years. The net cash inflow for the year was £10 million,
after expenditure of £101 million on share repurchases and cash
receipts of £14 million in connection with the exercise of share options.
This compared with a net cash outflow of £423 million in fiscal 2004, which
was after the payment of the special dividend of £501 million. Net debt
was £1,625
million at October 1, 2005.


On an FRS 17 basis,
      the Groups pensions schemes showed a deficit of £148 million at October 1, 2005 compared with
£173 million at 25 September 2004. The reduction in the deficit reflects the benefit of £30 million of additional pension contributions paid in the year and improved investment returns, offset by an increase in liabilities following a
reduction in the corporate bond rate used for discounting purposes. Full actuarial valuations of the Groups pension schemes as at March 31, 2004 were finalised during the year. As a result, regular annual contributions to the schemes increased
by £3 million during 2005. In addition, the Company has continued to make additional contributions to the schemes which amounted to £30 million during the year. A contribution of £20 million was paid shortly after the year end on
October 21, 2005, representing the total commitment for additional contributions for the 2006 financial year. For 2007, a further contribution of £10
million is committed under the present agreement with the Trustees. The next
actuarial valuation is planned to take place in line with the normal triennial
cycle in 2007.


At the end of fiscal
      2005 Retails estate consisted of 1,973 outlets of which 1,858 were
      managed. Of these, 1,215 were branded outlets, with 1,173 outlets across
      residential and city center locations throughout the United Kingdom and
42 sites in Germany.


Turnover.At
        the end of fiscal 2005, the Pubs & Bars estate consisted of 1,382
        outlets, of which 695 were branded outlets compared with the end of fiscal
        2004 when the estate consisted of 1,404 outlets, of which 686 were branded
        outlets. Turnover in 2005 grew by 4.8% including the 53rd week.
        Same outlet like-for-like sales growth in the division was 3.4% and uninvested
        like-for-like sales growth was 2.1%, both on a 52 week basis. Drinks
        sales showed good growth despite a further 3.6% volume decline in the
        on-trade beer market over the last year and ongoing price
competition from supermarkets. The emphasis has been on continuing to develop
        the range of products and price points that the Group offers,
        particularly in draught lager and speciality beers.


The branded local pubs in residential areas with strong food offers performed very well, as did the pubs in Central London overall, although their sales suffered since July, as a consequence of
the terrorist attacks. By contrast, the unbranded local pubs with a lower food sales mix were more exposed to the beer market declines and our High Street circuit bars continue to face intense competitive conditions.


The number of managed
      units in Pubs & Bars reduced to 1,267 after 30 pubs were sold and 21
      were transferred to operate under franchise agreements. There were on average
      1,262 trading outlets during the year. A total of 45 conversions were completed,
      predominantly to residential brands and formats such as Sizzling Pub Co.,
      Ember Inns and the Metro Professionals format. In addition, a new Ember
      Inn was opened, marking the first
new site acquisition for this brand.


Operating Profit.Operating
        profit in Pubs & Bars before exceptional items was £180 million,
4.0% up on 2004 including the 53rd week. Despite continuing pressure
on employment and energy costs, the net margin was 18.8% compared with 18.9%
last year.


40

---



Back to Contents

|Restaurants
|-----------

Turnover.At
        the end of fiscal 2005, the Restaurants estate consisted of 591 outlets,
        compared with the end of fiscal 2004, when the estate consisted of 602
        outlets. Turnover of £697 million in 2005 was up by 8.7% on the
        prior year, including the 53rd week. Same outlet like-for-like
        sales growth in the division of 6.9% and uninvested like-for-like sales
        growth of 4.4%, both on a 52 week basis, reflect
      excellent results, driven by the strength of the Group's brands,
      value offers and operating skills. By increasing the variety of dishes
      and extending the range of tastes being catered for, the Group has improved
      choice and attracted a wider customer base. This, combined with drinks
      value and range enhancements, has stimulated higher footfall and food volumes
      with the average pub-restaurant now selling over
1,800 main meals per week.


During the year, three
      new Vintage Inns and two Toby restaurants were opened. In addition, 35
      pubs were converted to existing brands as well as the Companys more
      recent offer developments in the Premium Country Dining market segment
      and the Pub Carvery format. Eight sites were sold and a further eight transferred
      to operate under franchise agreements. There were on average 584 trading
outlets during the year.


Operating Profit.Operating
        profit before exceptional items for the Restaurants Division of £116
        million was 17.2% up on 2004. This was due to the positive combination
        in Restaurants of strong volume performance, productivity improvements,
        the 53rd week and good cost control, with a corresponding increase in the net
operating margin from 15.4% to 16.6% .


|SCPD
|----

SCPD aims to maximize
      the value of the Groups surplus properties which are suitable for development. Turnover of £8 million (2004 £6 million) and operating profit of £1
million (2004 £1 million) were generated during the year, primarily through
the sale of two developments in Burton-on-Trent and Bournemouth.


Fiscal 2004 Compared with Fiscal 2003


In 2005, the Group changed its accounting policy to account for pensions in line
with FRS 17. Results for fiscal 2004 and fiscal 2003 have been restated accordingly.


Total sales for fiscal
      2004 were £1,560 million, 3.7% ahead of 2003. Sales growth continued
      to be particularly strong in the residential sectors of the market, led
      by strong food sales growth, with total managed pub food volumes up 8%
      for the year. The high street businesses continue to gain market share
in a competitive market.


Consistent with the
      Groups overall strategy, management, and the retail industry in general, considers sales growth and same outlet like-for-like sales growth to
      be key operational measures of performance. Same outlet like-for-like sales
      compares the sales reported by outlets fully operational in both of the
      fiscal years being compared. It removes the effect of acquisitions and
      disposals. The performance of
uninvested outlets (removing those where development capital has been spent in
the current or previous year) is also analyzed by management as follows:


|                 |  | Same outlet like-for-like
    sales |      | Uninvested like-for-like
    sales | 
|---------------- |  | ----------------------------------- | ---- | ---------------------------------- | 
|                 |  |                                     |      |                                    | 
|Residential Pubs |  |                                     | 6.6% |                                    | 
|High Street Pubs |  |                                     | 3.4% |                                    | 
|Total            |  |                                     | 5.6% |                                    | 

Same outlet like-for-like
      sales were up 6.6% in the 70% of the Groups pubs in residential areas.
      This growth was  driven by five key brands in this area: Harvester,
      Toby Carvery and Vintage Inns in pub-restaurants, and Ember Inns and Sizzling
      Pub Co which are high quality local pubs with significant food sales. In
      the 30% of the estate in the high street, the increases of 3.4% in same
      outlet like-for-like sales resulted from
three key factors; the customer differentiation of our brands such as All Bar
      One, Flares and ONeills,
a clear pricing strategy of every day good value; and recovery in the central
London market in the second half of fiscal
2004.


SCPD turnover was £6 million against £17
      million in fiscal 2003 due to fewer development projects being completed
in the year.


The Group is contractually obligated to purchase minimum quantities of beer from its tied beer supply contracts as a result of previous demerger and acquisition arrangements. As these minimum
purchase levels continued to fall in the year the Group has been able to increase its drinks range and sales volumes. Beer volumes were up 4%, underpinned by improvements in the range of premium, often imported, lagers and a widening of the regional
cask ale range. Non-beer drinks volumes have grown by 10%. In wine, volume growth has been accelerated by the development of own label wines directly sourced from the vineyards, while soft drinks growth reflects the expansion of the fresh fruit
juice range.


Management recognizes the need for effective promotional activity to maintain sales growth, but also monitors the impact on margins. By focusing promotional activity on those products that
offer attractive margins, the benefit of mix improvements has helped to offset the margin investment, and more importantly, further increased cash gross profit.


41

---



Back to Contents

Total operating costs
      and overheads less other income, excluding operating exceptional items,
      were £1,287 million in fiscal 2004 compared with £1,238 million
      in fiscal 2003. Gross margins remained broadly in line with last year.
      Selective price reductions and increased promotional activity continued
      and the average price of food and drink reduced by approximately 2%. The
      profit impact of this reduction was offset by managing
the product mix to maximize volume and overall profit contribution, and through
      the negotiation of improved terms from suppliers. In addition, the Group
      continued to deliver cost efficiencies to help offset increasing regulatory
      and other externally driven cost increases. Management maintained outlet
      employment costs at 24% of sales despite a 7% increase in the National
      Minimum Wage and has benefited from support cost savings following actions
put in place during fiscal 2003.


Total operating profit
      before operating exceptional items in fiscal 2004 amounted to £273 million, compared with £266 million in fiscal 2003. Operating profit from the ongoing Retail
estate at £272 million was up 3.0% on fiscal 2003 primarily as a result of the additional sales volumes and improvements in cost efficiencies more than compensating for the regulatory and other external cost increases noted earlier. SCPD
operating profit for the year was down £1 million on the previous fiscal year at £1
million due to the completion of fewer development contracts in the year.


Exceptional operating
      costs of £2 million were incurred during the year relating to the Securitization of the business which was completed on November 13, 2003. The non-operating
exceptional profit of £2 million arose on the disposal of pubs, often for
alternative use.


A total of £150 million of capital was invested in fiscal 2004. Nine new pubs were opened during the year, all in the Restaurant division. In addition, one new Hollywood Bowl opened. 95
pubs were converted to a new brand or format, principally our residential brands of Sizzling Pub Co and Ember Inns and the Metropolitan Professionals format. This expansionary capital accounted for £57 million of the gross capital invested and
the balance of £93 million was invested in maintaining the amenity of the pubs and continuing to evolve the brands and formats. The Group achieved proceeds of £51
million from disposals of pubs or surplus pieces of land during the year, often
for re-development.


|Net Interest Payable and Similar Items
|--------------------------------------

Net interest payable and similar items in fiscal 2004 was £102 million compared
with £65
million in fiscal 2003.


The interest on net
      debt before exceptional costs of £2 million (2003 £8 million), was £101 million in fiscal 2004 (2003 £55 million), reflecting the fixed rate interest
payable and amortization of deferred issue costs arising from the £1,900 million of secured loan notes issued on Securitization in November 2003, net of interest income earned on surplus cash. Prior to November 2003, the Group had floating rate
borrowings of around £1,300 million under a syndicated loan facility. In fiscal 2003 the net interest payable of £55 million, before exceptional costs of £8 million comprised net external interest of £32 million and net amounts
payable to Six Continents Group of £23 million.


The change in the interest
      cost profile is directly linked to the restructuring and Securitization
      of the Group. In fiscal 2003, prior to Separation, the Group was principally
      funded by inter-company loans from Six Continents PLC that bore interest
      at commercial rates. On Separation, the inter-company debt was repaid and
      replaced with external debt of around £1,300 million under a syndicated
      loan facility agreement. In fiscal
2004 the Groups Securitization was completed and approximately £1,900
million of secured loan notes issued to replace the loan facility and to facilitate
a return of £501 million to shareholders. In 2004, an exceptional interest

charge of £2 million (2003 £8 million) arose from accelerated amortization
of the facility fee in respect of the syndicated loan facility put in place at
the time of Separation and repaid on Securitization.


Following the adoption
      of FRS 17, the Group has reported net finance income in respect of pensions
      of £1 million (2003 cost of £2 million) representing the excess
      of the expected return on the
scheme costs over the interest cost of the scheme liabilities.


|Taxation
|--------

The tax charge in fiscal 2004 represented an effective
    rate of 31.0% compared with 24.0% in fiscal 2003. The increase in the year
    reflects the one-off benefit in fiscal 2003 of group relief from the Six Continents
    Group.


Excluding the effect of exceptional items, the tax
    rate in fiscal 2004 was 32.4%, compared with 30.3% the rate nominally applicable
    in the United Kingdom. The difference arises primarily as a  result of permanent
    differences, mainly depreciation on assets not qualifying for tax depreciation.


|Earnings per share
|------------------

In fiscal 2004, earnings
      totaled £118 million (2003 £117 million). Basic earnings per share were 21.1 pence, compared with 15.9 pence in fiscal 2003. After eliminating the effect of
the exceptional items the adjusted earnings per share for fiscal 2004 were 20.9 pence, compared with 19.2 pence in fiscal 2003. Diluted earnings per share, which reflect the notional exercise of the weighted average number of dilutive ordinary share
options outstanding under the Groups share option schemes, were 21.0 pence
in fiscal 2004 compared with 15.9 pence in fiscal 2003. Earnings per share increased
in fiscal 2004 as a result of the reduction of the weighted average number of
ordinary shares in issue during the year to 559 million (2003 735 million) as
a result of the share consolidation approved by the shareholders at an Extraordinary
General Meeting held on December 1, 2003.




42

---



Back to Contents

Significant changes were made to the financing structure
  of the Group on Separation which resulted in the replacement of inter-company
  balances owed to Six Continents with external debt. In addition, the Group no
  longer benefits from the Six Continents tax arrangements that were in place prior
  to Separation. Therefore, in order to provide an indication of the underlying
  performance of the Group, underlying earnings per share are presented below,
  which are calculated to exclude exceptional items and on the basis that the post
  Separation financing and taxation structure had been in place since October
  1, 2002. This non-UK GAAP information was presented to UK shareholders and management
  considers it important that US shareholders are provided with the same information.


|                                   |  | Fiscal 2004              |                 | Fiscal 2003                         |    
|---------------------------------- |  | ------------------------ | --------------- | ----------------------------------- | ---
|                                   |  | restated
    for FRS 17) |                 | (restated for FRS
              17) |    
|                                   |  |                          | As
    reported |                                     |    
|                                   |  |                          |                 |                                     |    
|                                   |  | (£ million)              |                
|Profit before interest             |  |                          | 273             |                                     |    
|Interest                           |  |                          | (102            | )                                   | (i)
|Tax                                |  |                          | (53             | )                                   | (i)
|                                   |  |                          |                 |                                     |    
|Earnings available forshareholders |  |                          | 118             |                                     |    
|                                   |  |                          |                 |                                     |    
|                                   |  |                          |                 |                                     |    
|Basic earnings per share (iv)      |  |                          | 21.1            | p                                   |    
|                                   |  |                          |                 |                                     |    
|                                   |  |                          |                 |                                     |    

|     
|-----
|(i)  
|(ii) 
|(iii)
|(iv) 
|     

|Cash Flow and Capital Expenditure
|---------------------------------

Net cash inflow from
      operating activities of £378 million was £72 million higher than in fiscal 2003. This increase was due to increased earnings before interest, taxation,
depreciation, amortization and exceptional items of £16 million, a reduction in working capital outflows of £23 million and exceptional expenditure and Separation costs reduced by £33 million. Net interest cash outflows, including
issue costs and facility fees, increased from £65 million in fiscal 2003 to £120 million in fiscal 2004 primarily due to the refinancing of the Group and the return of £501 million to shareholders in December 2003. Taxation cash
outflows in fiscal 2004 reduced to £34 million primarily as a result of a prior year tax refund. Capital expenditure remained broadly level at £150 million in fiscal 2004 compared with the prior year of £151 million, while income from
the sale of assets rose slightly to £51 million compared with £48 million
in fiscal 2003.


On November 13, 2003,
      the Group completed a securitization of the majority of its pubs, raising
      a total of £1,900 million through the issue of secured loan notes. The proceeds from
Securitization were used to repay the Groups outstanding borrowings of £1,243 million under its syndicated loan facility, meet the costs of the refinancing, make special additional contributions to the pension schemes and return surplus
funds of £501 million to shareholders by way of a special dividend of 68p
per share accompanied by a 12 for 17 consolidation of the number of shares in
issue.


The Group had net debt
      of £1,228 million at the end of fiscal 2003. This increased to £1,632
      million at the end of fiscal 2004 as a result of the Securitization and
      associated return of funds, resulting in a balance sheet gearing ratio
of 115%.


|Retail
|------

At the end of fiscal
      2004 Retails estate consisted of 2,006 outlets of which 1,919 were
      managed. Of these, 1,229 were branded outlets, with 1,187 outlets across
      residential and city center locations throughout the United Kingdom and
42 sites in Germany.


|Pubs & Bars
|-----------

Turnover.At
        the end of fiscal 2004, the Pubs & Bars estate consisted of 1,404 outlets, of which 686 were branded outlets, compared with the end of
fiscal 2003 when the estate consisted of 1,417 outlets, of which 649 were branded outlets. Turnover in 2004 grew by 4.6% to £913
million. Same outlet like-for-like sales growth in the division was 4.6% and
uninvested like-for-like sales growth was 2.3% . Sales growth has remained strongest
in the residential segment with Sizzling Pub Co and Ember Inns, the two drinks-led
brands with distinct food offers, showing a particularly strong performance.
Despite a very competitive market, the
drinks-led offers on the high street have continued to perform well, assisted
by a recovery in central London in the second half.


Conversions of 78 existing pubs were completed during the year. The number of managed pubs and bars reduced to 1,317 following a number of disposals and transfers to Business Franchises net of
transfers in from the Restaurant Division.


43

---



Back to Contents

The Group has been developing
      a Business Franchise model for smaller properties that can benefit from
      entrepreneurial freedom supported by Mitchells & Butlers systems and
      purchasing scale in return for a fixed rent and turnover related franchise
      fee. At the end of fiscal 2004 there were 75 Business Franchises in operation
(2003 18).


Operating Profit.Operating
        profit before exceptional items of £173 million was 0.6% up on 2003.
        Despite the increase in external costs during 2004
and the Groups sales activity, which was biased towards Pubs & Bars,
net operating margins were only 0.8% points below 2003.


Turnover.At
        the end of fiscal 2004, the Restaurants estate consisted of 602 outlets,
        of which 543 were branded outlets, compared with the end of fiscal 2003,
        when the estate consisted of 636 outlets, of which 550 were branded outlets.
        Turnover of £641 million in 2004 was up by 4.4% on the prior year. Same outlet like-for-like sales growth in the division of 7.0% and uninvested like-for-like
sales growth of 5.9% reflect particularly strong trading by the pub-restaurant brands Toby Carvery, Vintage Inns and Harvester, which are increasing their share of the growth in the eating out market. The lower rate of total sales growth reflects 17
transfers to Pubs & Bars during the year, where the demographics around the
pub mean that it is now better suited to a more drinks led offer, as well as
a number of transfers to Business Franchise.


A total of nine new pubs were opened during the year, eight Vintage Inns and one Toby Carvery. 17 pubs were converted, ten to Toby Carvery and five trial sites trading under a new suburban pub
dining format which the Group is developing jointly as managed pubs with an entrepreneur.


Operating Profit.Operating
        profit before exceptional items for the Restaurants Division of £99
        million was 7.6% up on 2003. Strong sales growth in food, drinks and
        accommodation, together with further progress on staff productivity,
        an operational measure used by management to compare sales less staff
        costs with staff hours worked, enabled the division to more than offset
        external cost
pressures and improve net operating margins by 0.5% points.


SCPD aims to maximize
      the value of the Groups surplus properties which are suitable for development. Turnover of £6 million (2003 £17 million) and operating profit of £1
million (2003 £2 million) were generated during the year, primarily from
the sale of a retail development in Bournemouth on the site of a former pub.
The change in the year reflects the timing of the completion of development
projects.




LIQUIDITY AND CAPITAL RESOURCES


Following separation
      from Six Continents in April 2003, the Groups sources of liquidity consisted of cash generated from operations and available financing facilities of £1,500
million.


On November 13, 2003,
      the Group refinanced its debt through the completion of an offering of
      debt secured against the majority of its UK pubs and pub-restaurants business.
      The refinancing was
effected through the issuance of £1,900 million of secured loan notes by a wholly-owned Group company, Mitchells & Butlers Finance plc. The funds raised were used to repay the existing amounts outstanding under the facility agreement of
£1,243 million, meet the refinancing costs, make special contributions to the pension schemes and return surplus funds of £501
million to shareholders by way of a special dividend of 68p per share, paid on
December 8, 2003.


The terms of the key
contracts for the Securitization arrangements are summarized in Item 10, Additional Information  Material Contracts.


The Securitization provides
      the Group with long-term financing at a cash interest cost of 6% through
      a range of fixed rate notes and floating rate notes that have been swapped
      into fixed rate sterling using interest rate and currency swaps. More detail
      on these arrangements, including details of the note interest rates and
      the principal and interest flows, is provided in Item 11, Quantative and Qualitative Disclosures about Market
Risk.


Following completion
      of the Securitization transaction and repayment of outstanding borrowings,
      the Groups £1,500 million syndicated financing facility was
canceled.


The Group also benefits from a £60 million working capital facility, provided
by The Royal Bank of Scotland.


Net operating cashflow
      in the financial year before exceptional items and after capital expenditure
      and disposals in fiscal 2005 was £294 million (2004 £284 million).
      Taking into account the anticipated levels of internal cash generation
      and available facilities, the Group is satisfied that it has sufficient
      resources to meet its operating requirements and to fund expected capital
expenditure for fiscal 2006.


The Group has established policies in respect of its investment of surplus funds. Credit risk on treasury transactions is reduced by restricting investment to counterparties with a minimum
credit rating of A, utilizing pre-authorized Board limits for each counterparty.


Exchange and Interest Rate Risk and Financial Instruments

The Groups treasury
      policy is to manage financial risks that arise in relation to underlying
      business needs. Current policy in respect of interest rate risk is to fix
      the cost on all Group debt. All treasury activities are governed by Board
Treasury


44

---



Back to Contents

Policy Guidelines and the treasury department is subject to regular review
  by the internal audit department. Authorized treasury instruments for the management
  of risk are interest rate swaps, interest rate options, forward rate agreements
and currency swaps.

Further qualitative
      and quantitative information on treasury management and interest rate risk
      is disclosed in Item 11. Quantitative and Qualitative Disclosures about Market
Risk.


As at the end of fiscal
      2005 the Group had committed contractual capital expenditure of £28
      million. Contracts for expenditure on fixed assets are not authorized by
      the Directors on an annual basis, as divisional capital expenditure is
      controlled by cash flow budgets. Authorization of major projects occurs
shortly before contracts are placed.


The Company intends to invest gross capital expenditure in fiscal 2006 at a similar level as that made in fiscal 2005. This level of capital expenditure is reviewed regularly during the year
and may be increased or decreased in the light of prevailing economic and market conditions and other financial considerations. Individual asset capital plans are also reviewed to assess the appropriateness of the projects and their
timing.


The total cash capital
      expenditure by the Group in fiscal 2005, 2004 and 2003 was £167 million, £150 million, and £151
million, respectively.


As part of the Separation
      from Six Continents PLC, the Company became the sponsoring employer for
      the Six Continents Pension Plan and the Six Continents Executive Pension
      Plan, subsequently
renamed the Mitchells & Butlers Pension Plan and the Mitchells & Butlers Executive Pension Plan respectively (the Plans) following the transfer of approximately 30% of the assets and liabilities of the Six Continents Plans to the
new InterContinental Group Plans and the Britvic Group Plans with effect from April 1, 2003. The Group continues to be exposed to the funding risks in relation to the defined benefit sections of the Plans as explained in Item 3. Key
Information  Risk Factors.


Both of these Plans
      were last formally valued as at March 31, 2004. The results of the valuation
      showed the staff plans and executive plans defined benefits to be funded at 130% and
120% respectively on the statutory minimum funding requirement basis. On an ongoing basis the funding levels are 84% (i.e. £129 million deficit) for the staff plan and 85% (i.e. £39 million deficit) for the executive plan. These
calculations do not account for additional contributions of £50 million already made (£10 million in October 2004, £20 million in December 2004 and £20 million in October 2005) and commitments of £10
million for fiscal 2007. The actuary has further recommended, in relation to
the staff plan defined benefits, that for future service accrual, employers contribute
at a rate of 16.5% . The corresponding recommended percentage in relation to
the executive plan is 34%. These
rates became effective on October 1, 2004. The next formal actuarial valuation
is planned for March 2007.


45

---



Back to Contents



MATERIAL TRENDS AND UNCERTAINTIES


The Group operates in
      a regulated industry and changes to applicable regulations are the primary
      source of material uncertainties for the Group. The Government published
      the Health Bill on October 27, 2005 announcing its proposal to prohibit
      smoking in pubs where food is prepared and sold as from the summer of 2007
      in England and Wales. On February 14, 2006, MPs amended the Health Bill
    to prohibit smoking in all pubs and private members' clubs. The Government
    originally indicated that the new legislation will come into effect
    in the
    summer of
2007, although this could be delayed until 2008 by the Government to give businesses
      more time to prepare for the ban. Given the experience of pub companies
      in other countries in which smoking in pubs and enclosed spaces has been
      banned, it may be some time following the implementation of any potential
      ban before the likely impact on the Groups operations or financial
      condition can be properly assessed. In the meantime, the Company is currently
      implementing most aspects of its voluntary initiative. The Company has
      trialed no-smoking pubs in order to learn more about the impact on the
      business of a ban on
      smoking and is continuing to invest in the external
      areas of pubs in order to offer choice to customers who wish to
smoke. As regards Wales, the Welsh Assembly is expected to vote on whether smoking
      in pubs shuld be banned.


On October 1, 2005 the
      adult national minimum wage increased by 4.1% to £5.05 per hour and will increase to £5.35
from October 2006.


The Company expects
      total regulatory and energy costs to increase during the 2006 financial
      year, as a result of changes to existing regulations and increases in energy
      costs resulting from rises in worldwide oil and gas prices. These costs
    in fiscal
2006 are expected to increase by approximately £25 million.


The Groups strategy has continued to drive strong market share gains and
to deliver good sales growth amidst more difficult trading conditions. In the
first 16 weeks of fiscal 2006, same outlet like-for-like sales were 4.0% ahead
of the comparable period last year. Sales growth benefited particularly from
strong trading in the week before, and the week after, Christmas as well as a
modest uplift from the introduction of extra licensed trading hours. Overall
trading is in line with the Boards expectations.


In residential areas, which account for 70% of the business, same outlet like-for-like
sales were up 4.7%, 2.5% on an uninvested basis. Same outlet like-for-like sales
on the high street which account for 30% of the business were up 2.8%, 2.2% on
an uninvested basis. Overall, uninvested like-for-like sales were up 2.3% .


Total retail sales were 3% ahead of last year, led by strong growth in food sales,
up 5%. Drinks sales performed well in a weak on-trade beer market and were up
2%.


The average price of food and drink during the period was up by approximately
1% compared to last year. Gross margins were slightly reduced primarily as a
result of the faster growth in the lower margin product categories of food and
wine which now account for approximately 40% of sales. This trend, together with
the estimated regulatory and energy cost increases of some £25 million this
year will continue to put pressure on net operating margins.


The Group has been preparing for legislation on smoking, banning it at the bar,
reducing the smoking areas available and improving its food offers and the attractiveness
of its outside trading areas. On February 14, 2006, MPs voted in favor of an
    amendment to the Health Bill to secure an
outright ban on smoking in all pubs and private members’ clubs.


The Group believes that it is well positioned competitively to overcome the impact
of the legislation, after the inevitable, initial period of disruption, and maximise
the opportunity of attracting new, eating-out
customers to its pubs.


Cash generation from the business remains strong and the Group is intent on continuing
to deploy its cash resources in the best interests of shareholders, through reinvestment
for high returns, value creative acquisitions or return by way of dividend and
share buy-back. The Board remains committed to the maintenance of an efficient
balance sheet. The buy-back programme of £100 million announced in November
is underway with £18 million of shares repurchased as at February 2, 2006.
The additional pension contribution of £20 million committed for the current
year has been made.


The Board remains cautious on the outlook for consumer spending but is confident
that the Group can make further market share gains through focusing on offering
value and choice for customers, together with high levels of amenity and service.
The Board believes that this strategy, combined with economies of scale and the
continued investment to develop the estate, will help the Group to mitigate the
external cost pressures that the business faces and generate further growth in
earnings and cash returns as the year progresses.


OFF BALANCE SHEET ARRANGEMENTS


The Group has no off
      balance sheet arrangements that have, or are reasonably likely to have,
      a current or future material effect on the Groups financial condition,
      changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditure or capital resources.


46

---



Back to Contents

CONTRACTUAL OBLIGATIONS

Contractual obligations at October 1, 2005 were
  as follows:


|                               | Payments due by period | 
|------------------------------ | ---------------------- | 
|                               |                        | 
|                               | Total                  | 
|                               |                        | 
|                               | (£ million)            | 
|Short-term debt                | 40                     | 
|Long-term debt                 | 1,801                  | 
|Fixed interest payments        | 1,372                  | 
|Operating leases               | 819                    | 
|Capital expenditure contracted | 28                     | 
|Purchase obligations           | 82                     | 
|                               |                        | 
|                               | 4,142                  | 
|                               |                        | 

The Group has also agreed pension plan commitments
    as described above under Liquidity and Capital Resources  Pension
    Plan Commitments.


Short-term and long-term debt obligations represent scheduled repayments of principal assuming that the Groups class A1 and A3 secured loan notes will be repaid at the margin step-up
dates in December 2010.


Fixed interest payments are those payable in respect of the Groups secured loan notes after taking account of the interest rate and currency swaps that fix the interest payable on the
variable rate class A1 and A3 notes and assuming that these notes will be repaid on the margin step-up dates in December 2010.


Purchase obligations relate to the minimum volumes that the Group is required to purchase under its supply agreements with Carlsberg UK and Britvic. See Item 4. Information on the Company
 Key Supply Partners for further information. For the purposes of the table above, the minimum volumes have been valued in relation to the current mix of products purchased.


47

---



Back to Contents

|ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
|------- | ------------------------------------------



DIRECTORS AND SENIOR MANAGEMENT


Overall strategic direction of the Company is provided by the board of directors, comprising Executive and Non-Executive directors, and the other senior management members of the Executive
Committee.


|                                   |  |                                          |  |              |  | Date of
                next | 
|---------------------------------- |  | ---------------------------------------- |  | ------------ |  | ---------------------------- | 
|                                   |  |                                          |  | Initially    |  | reappointment                | 
|                                   |  |                                          |  | appointed    |  | by                           | 
|Name                               |  | Title                                    |  | to the Board |  | shareholders                 | 
|                                   |  |                                          |  |              |  |                              | 
|Directors                          |  |                                          |  |              |  |                              | 
|Mike Bramley (i)                   |  | Managing Director, Pubs & Bars           |  | 2003         |  | 2008                         | 
|Roger Carr (ii)                    |  | Non-Executive Chairman                   |  | 2003         |  | 2008                         | 
|Tim Clarke (i) (ii) (iv)           |  | Chief Executive                          |  | 2003         |  | 2009                         | 
|George Fairweather (ii) (iii) (iv) |  | Non-Executive Director                   |  | 2003         |  | 2009                         | 
|Drummond Hall (ii) (iii)           |  | Non-Executive Director                   |  | 2004         |  | 2008                         | 
|Tony Hughes (i) (iv)               |  | Managing Director, Restaurants           |  | 2003         |  | 2009                         | 
|Sir Tim Lankester (ii) (iii)       |  | Non-Executive Director                   |  | 2003         |  | 2007                         | 
|Karim Naffah (i)                   |  | Finance Director                         |  | 2003         |  | 2007                         | 
|Sara Weller (ii) (iii)             |  | Senior Independent Non-ExecutiveDirector |  | 2003         |  | 2007                         | 

|     
|-----
|(i)  
|(ii) 
|(iii)
|(iv) 



|Senior Management Team |  |                                                   
|---------------------- |  | --------------------------------------------------
|John Butterfield       |  | Strategy Director                                 
|Bronagh Kennedy        |  | Company Secretary, HR Director and General Counsel
|Adam Martin            |  | Marketing Director                                
|Richard Pratt          |  | Commercial Director                               
|Alison Wheaton         |  | Property and IT Director                          
|Jeremy Townsend        |  | Deputy Finance Director                           
|Adam Fowle             |  | Business Development Director                     

Bill Scobie, Deputy Finance Director and member of the Senior Management Team, retired on December 31, 2004.


Directors

Mike Bramley, aged 54, Managing Director,
Pubs & Bars

Mike Bramley is the Managing Director of the Pubs & Bars division. Having been a director of Six Continents Retail, he became a Director of the Company upon Separation. He has been Managing
Director, Pubs & Bars since September 2002. In over 20 years with Bass/Six Continents, he worked in a variety of roles in the pubs and brewing businesses. In 1995, he became Commercial Director of Bass Taverns and in 1998 was appointed HR and
Commercial Director of Bass Leisure Retail (later Six Continents Retail). He is a director of the British Beer & Pub Association.


Roger Carr, aged 59, Non-Executive Chairman

Roger Carr is the Chairman of the Company. He became Chairman at the time of the Separation, having been the senior independent non-executive director of Six Continents PLC. He is Chairman of
Centrica plc and Deputy Chairman of Cadbury Schweppes plc. He is senior adviser to Kohlberg Kravis Roberts Co. Ltd.


Tim Clarke, aged 48, Chief Executive

Tim Clarke is the Chief Executive. He has been the Chief Executive since the Separation, having previously held the same role in Six Continents PLC since October 2000. He chairs the Executive
Committee. He joined Bass in 1990, initially responsible for planning in the retail division. He was subsequently Director of Strategy for Bass PLC and Managing Director of Bass European Hotels between 1992 and 1995. Between 1995 and 2000 he
was Chief Executive of Bass Retail, which now constitutes the business of Mitchells & Butlers plc. He is a director of the British Beer & Pub Association, having been chairman in 2002, and is a non-executive director of Associated British
Foods plc.


George Fairweather, aged 48, Non-Executive
Director

George Fairweather is a Non-Executive Director of M and B. Appointed a Non-Executive Director in April 2003, he chairs the Audit Committee. He is group finance director of Alliance UniChem
Plc.


48

---



Back to Contents

Drummond Hall is a Non-Executive Director of M and B having been appointed in July 2004. He is Chief Executive of Dairy Crest Group plc.


Tony Hughes, aged 57, Managing Director,
Restaurants

Tony Hughes is the Managing Director of the Restaurants division. Having been a Director of Six Continents Retail, he became a Director of the Company on Separation in April 2003. He has been
Managing Director, Restaurants since 2000 having joined Bass in 1995. In 2002 he was voted Retailers Retailer Individual of the Year by the pub and restaurant industry and in 2001 he received the Hotel and Caterer Catey for the Pub
Industry Award.


Sir Tim Lankester, aged 63, Non-Executive
Director

Sir Tim Lankester is a Non-Executive Director of M and B. Appointed a Non-Executive Director in May 2003, he is President of Corpus Christi College, Oxford. He is a member of the Board of ACTIS
Capital.


Karim Naffah, aged 42, Finance Director

Karim Naffah is the Finance Director. Having been Strategy Director of Six Continents PLC, he became Finance Director of the Company upon Separation. In 1991 he joined Bass, becoming its
Director of Strategic Planning in 1992. In 2000, he became Strategy Director for that group and a member of the Strategic Business Committee and the executive committees of the Hotels and Retail divisions. He also held responsibility for the
property development and IT functions.


Sara Weller, aged 44, Non-Executive
Director

Sara Weller is a Non-Executive Director of M and B. Appointed a Non-Executive Director in April 2003, she chairs the Remuneration Committee and is the Senior Independent Non-Executive Director.
She is Managing Director of Argos Ltd.


Senior Management, Members of the Executive
Committee

The following senior management, together with the Executive Directors, are responsible for reviewing the Groups strategy and policy and for monitoring their implementation:


John Butterfield, Strategy Director

John Butterfield, aged 41, is M and Bs Strategy Director. He joined Bass in February 1999 and transferred to the retail business in May 2000 to take up the position of Director of
Strategic Planning. He was previously employed by Bain & Company (management consulting) and Standard Chartered/WestLB (investment banking).


Adam Fowle, Business Development
Director

Adam Fowle, aged 47, joined the Company from J Sainsbury plc on March 14, 2005 and is M and Bs Business Development Director. Previously, he was employed as Managing Director, Pubs &
Bars of Six Continents Retail.


Bronagh Kennedy, Company Secretary, HR Director and General Counsel

Bronagh Kennedy, aged 42, is M and Bs Company
    Secretary, Human Resources Director and General Counsel. She is a qualified
    solicitor and joined the Bass retail business in April 1995. She  became
    the Director of Legal Affairs for the retail business in 2000 and in 2002,
    she was appointed Human Resources Director and General Counsel for the retail
    business. Previously, she was employed with Allen & Overy LLP.


Adam Martin, Marketing Director

Adam Martin, aged 42, is M and Bs Marketing Director. He joined the Bass Group in 1996 and became Marketing Director of the retail business in 1999, with responsibility for all aspects of
marketing and promotion. He was previously employed at Gemini Consulting and Cadbury Limited.


Richard Pratt, Commercial Director

Richard Pratt, aged 50, is M and Bs Commercial Director with responsibility for Supply Chain and Electronic Leisure. He joined the Bass retail business in 1994 in the position of Catering
Retail Director, having previously worked for Diageo plc.


Jeremy Townsend, Deputy Finance Director

Appointed in June 20, 2005, Jeremy Townsend aged 42, is Mitchells & Butlers Deputy
Finance Director. He has previously worked for J Sainsbury plc and Ernst & Young
LLP.


Alison Wheaton, Property and IT Director

Alison Wheaton, aged 42, is M and Bs Property and IT Director. She joined the Bass retail business in 1997 as Director of Strategic Planning, then became Operations Director for London
and Venues, and was appointed to Six Continents retail business as Portfolio Director with responsibility for Estates, Acquisitions, Construction and Portfolio Planning in 2002. She was previously employed with Pepsi Cola, Lever Brothers and
Morgan Stanley.


49

---



Back to Contents

COMPENSATION

In fiscal 2005, M and B paid aggregate compensation, including pension contributions, bonuses and awards under the long-term incentive plans, to the Directors of M and B and other members of
the Senior Management Team of £6,578,000. The aggregate amount set aside or accrued by M and B Group in fiscal 2005 to provide pension retirement or similar benefits for those individuals was £700,000. An amount of £2,432,000 was
charged in fiscal 2005 in respect of bonuses payable to them under performance related cash bonus schemes and long-term incentive plans.


Directors Emoluments

|                        |               |                            |       |          |            |    |  | Total emoluments | 
|----------------------- | ------------- | -------------------------- | ----- | -------- | ---------- | -- |  | ---------------- | 
|Basic                   | Annual        | (excluding
      pensions)
|salaries                | performance   | 53 weeks                   |       | 52 weeks
|and fees                | bonus
    (i) | Benefits                   | 2005  |          | 2004 (iii)
|                        |               |                            |       |          |            |    |  |                  | 
|                        | (£ 000)       |                           
|Executive Directors     |               |                            |       |          |            |    |  |                  | 
|Mike Bramley            | 356           |                            | 177   |          |            | 16 |  | 549              | 
|Tim Clarke              | 528           |                            | 289   |          |            | 25 |  | 842              | 
|Tony Hughes             | 356           |                            | 194   |          |            | 25 |  | 575              | 
|Karim Naffah            | 376           |                            | 205   |          |            | 14 |  | 595              | 
|Non-Executive Directors |               |                            |       |          |            |    |  |                  | 
|Roger Carr              | 203           |                            |      |          |            |   |  | 203              | 
|George Fairweather      | 50            |                            |      |          |            |   |  | 50               | 
|Drummond Hall (ii)      | 43            |                            |      |          |            |   |  | 43               | 
|Sir Tim Lankester       | 43            |                            |      |          |            |   |  | 43               | 
|Sara Weller             | 50            |                            |      |          |            |   |  | 50               | 
|                        |               |                            |       |          |            |    |  |                  | 
|Total 2005              | 2,005         |                            | 865   |          |            | 80 |  | 2,950            | 
|                        |               |                            |       |          |            |    |  |                  | 
|Total 2004              | 1,882         |                            | 1,105 |          |            | 77 |  |                 | 
|                        |               |                            |       |          |            |    |  |                  | 

|
|

|(i)   | At the discretion of the Remuneration Committee, the annual performance bonuses as described above for 2005, in respect of Mr Bramley and Mr Hughes, were wholly deferred into shares under the terms of the Short Term
Deferred Incentive Plan and, in respect of Mr Clarke and Mr Naffah, were 50% deferred. The annual performance bonuses for 2004 were wholly deferred.
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(ii)  | Appointed July 30, 2004, his fees are paid to Dairy Crest Group plc, his employer.                                                                                                                                                                                                                                                                                          
|     
|(iii) | The prior year is restated to remove
      the value of shares awarded under the Share Incentive Plan.                                                                                                                                                                                                                                                                      
|     

Benefits incorporate all benefits arising from employment with the Company which relate in the main to the provision of a company car and healthcare cover.


The figures above represent emoluments
  earned during the periods shown. There were no payments for loss of office.


Total remuneration earned by those members of the Executive Committee who were employed in the Group at year end and who were not main Board directors is shown in the bands below:


|No. of Executives |  |  | £000     |  
|----------------- |  |  | -------- | -
|                  |  |  |          |  
|2                 |  |  | 0  250  | *
|2                 |  |  | 251 300 |  
|3                 |  |  | 301 350 |  

|                                                                     | 
|-------------------------------------------------------------------- | 
|*Executives
    in this category were employed for a part year only.
|                                                                    

50

---



Back to Contents

|Company Share Schemes
|---------------------

During the year, the Remuneration Committee reviewed Executive Director remuneration with a view to:


| |  | Simplifying the remuneration package;                                       
| | - | ----------------------------------------------------------------------------
| |   |                                                                             
| |  | Making the package a little less reliant on
      deferred remuneration; and
| |   |                                                                             
| |  | More closely aligning Directors interests
      with those of shareholders.

Following approval by shareholders at the Annual General Meeting on 2 February 2006, the following changes to the Companys share schemes were made:


| |  | The Executive Share Option Plan was discontinued;                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | Dividend Accrued Shares are to
      be awarded to Executive Directors to a value not exceeding the value of
      dividends paid during the performance period in
      respect of those shares which vest under the Short Term Deferred
      Incentive Plan (STDIP) and the Performance Restricted Share
      Plan (PRSP);
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | The rules of the STDIP were amended so that
      the individual limit in respect of the bonus award was increased
      from 80% to 100% of basic annual salary; and                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                     
| |  | The limit of the annual award under the PRSP
      was increased from 90% to 177% of annual basic salary.                                                                                                                                                                                                                           

The following are details of the principal employee share schemes in which the Companys Directors and members of the Executive Committee participated during fiscal 2005.


|Executive Share Option Schemes (EXSOP)
|----------------------------------------

This Scheme has been discontinued in respect of future grants. Executive Directors may, subject to achievement of the performance condition and the rules of the Plan continue to exercise share
options already granted until the expiry of the existing grants. These grants will lapse, under normal conditions, at various dates up until 2015.


A performance condition, set by the Remuneration Committee, has to be met before options can be exercised. For options granted in 2005, the performance measure is that the Companys
earnings per share growth (eps) over the three-year period must increase by at least 9 percentage points per annum on average over the growth in the UK Retail Prices Index (RPI) before options can be exercised in full and
reduced exercises will be permitted for lower levels of eps growth, as follows:


If eps growth over the performance period exceeds the growth in RPI by 4 percentage points per annum on average over the performance period, one-third of the ordinary shares under option will
become exercisable. There is straight line vesting between these two points.


If these performance targets are not met, the relevant option will lapse; otherwise the options will normally lapse ten years after the date of grant. Retesting is not permitted for options
granted from 2004 onwards.


Executive share options are not pensionable.


|Short Term Deferred Incentive Plan (STDIP)
|--------------------------------------------

At the discretion of the Remuneration Committee, the Executive Directors may receive all or part of their annual performance bonus in the Companys shares. An award of bonus shares earned
in fiscal 2005 will be deferred for three years and, if the Executive Director is in the Companys employment at the end of that period, the Company will provide matching shares on a 1:1 basis. Vesting of matching shares takes place subject to
the achievement of a three year performance condition, as approved by shareholders at the AGM in 2005. There is no retesting of the performance condition. For awards of matching shares in respect of the financial year 2004/05, the performance
condition is based on growth in eps. The vesting of matching shares will be on a sliding scale according to the level of eps growth.


Following the approval by shareholders at the 2006 AGM, the STDIP has been altered to increase the percentage available for a bonus award from 80% of basic salary to 100% of basic salary,
together with the introduction of Dividend Accrued Shares as described above. The requirement to defer the bonus award into bonus shares has been reduced from a 100% requirement to a 50% requirement.


The performance condition for awards in relation to fiscal 2006 is expected to be based on eps growth. There will be no retesting of the performance measure.


STDIP benefits are not pensionable.


|Performance Restricted Share Plan (PRSP)
|------------------------------------------

The PRSP allows Executive Directors and eligible senior employees to receive awards of shares or cash subject to the satisfaction of a performance condition, set by the Remuneration Committee,
which is measured over a three-year period.


51

---



Back to Contents

Shareholders approved an amendment to the Scheme approving an increase in the percentage of basic salary which may be awarded from 90% to 177% together with the introduction of Dividend Accrued
Shares as described above.


For each cycle, 50% of the award is measured by reference to TSR performance against a comparator group of other companies.


For the cycle of September 2005, the Company had to finish in first to sixth position for an award to vest graded between 100% of the TSR element of the award for first or second to 20% for
sixth position. Below sixth position, the award relating to TSR lapses. The Company finished in ninth position, so no award vested. For the cycles to September 2006 and September 2007, the Company has to finish in first to fifth position for an
award to vest. Below fifth position, the award relating to TSR lapses.


The vesting of the other 50% of the award will be based on the average amount by which the Companys cash return on capital employed (CROCE) exceeds its weighted average cost
of capital (WACC) over the performance period. The award for this element of the performance measure is graded so that, for cycles to September 2005 and September 2006, if the amount by which the CROCE exceeds the WACC over the
performance period is at least 4.5 percentage points, 100% of the CROCE element of the award will vest, whereas if the excess is 3 percentage points, 20% of the award will vest. In between 3 and 4.5 percentage points, the award will be graded on a
straight line basis. Below 3 percentage points there will be no award in respect of this element. The excess of CROCE and WACC for the cycle to September 2005 was 4.2 percentage points, therefore 84% of this element of the award vested.


For the cycle to September 2007, the vesting of the other 50% is based on the excess of CROCE and WACC as described above, except that if the amount by which the CROCE exceeds WACC over the
performance period is at least 5 percentage points, 100% of the CROCE element of the award will vest, whereas, if the excess is 3.5 percentage points, 20% will vest.


TSR was chosen as a measurement because the Company believes it aligns the interest of management with that of shareholders. The CROCE/WACC measure was chosen to motivate the Executive
Directors to increase the cash returns generated by the business and to reduce the overall cost of funding the Company, thereby maximizing the spread between the two and increasing shareholder value.


Benefits under PRSP are not pensionable.


|Rolled Over Options
|-------------------

On Separation, the Groups executives, including the Executive Directors, with outstanding options under the Six Continents Executive Share Option Schemes were permitted to roll over those
options into options of equivalent value over the Companys shares. The performance conditions ceased to apply to these options on Separation.


|Other Share Plans
|-----------------

Executive Directors may participate in the all-employee plans, the Sharesave Plan and the Share Incentive Plan. Performance targets do not apply to such plans.


52

---



Back to Contents

BOARD PRACTICES

General

The Board is committed to compliance
      with the principles of good corporate governance as set out in the Combined
      Code on Corporate Governance of the UK Listing Authority (the Combined
Code) as revised in November 2003. It also monitors new developments in
the United Kingdom, the rest of Europe and the United States in order to maintain
continuing compliance with best practice international corporate governance standards.
The Board considers that as at October 1, 2005, it was fully compliant with the
Combined Code and remains so.


The Board has responsibility to the shareholders for the strategic direction, development and control of the Group and it meets regularly. All the Directors have access to the advice and
services of the Company Secretary and are able to gain access to external independent advice should they wish to do so.


An appropriate balance of executive and non-executive members of the Board is maintained and the Board is supplied with regular and timely information concerning the activities of the Group in
order to enable it to exercise its responsibilities and control functions in a proper and effective manner.


The Company maintains an active investor relations
  program.


M and B has four main formally
      constituted committees to carry out work on behalf of the Board: an Audit
      Committee and a Remuneration Committee, both of which comprise Non-Executive
      Directors only; a Nomination Committee which comprises Non-Executive Directors
      and an Executive Director; and an Executive Committee which comprises Executive
      Directors and senior management. The Committees each have written terms
      of reference approved by the
Board which are on the Companys website.


|(i) | Audit Committee
|--- | ---------------

The Audit Committee is chaired
      by George Fairweather and consists of George Fairweather, Drummond Hall,
      Sir Tim Lankester and Sara Weller. The Committees principal responsibilities
      are to:




| | • | review the Companys public statements on internal
    control and corporate governance compliance prior to their consideration by the Board;                                                                                                                             
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                           
| | • | review the Companys processes for detecting fraud,
      misconduct and control weaknesses and to consider
    the Companys response to any such occurrence;                                                                                                            
| |   |                                                                                                                                                                                                                                                                           
| | • | review managements evaluation of any change in
    internal controls over financial reporting;                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                           
| | • | review with management and the external auditors any financial statements required under UK or US legislation before submission to the Board;                                                                                                                             
| |   |                                                                                                                                                                                                                                                                           
| | • | establish, review and maintain the role and effectiveness of the Group Assurance function;                                                                                                                                                                                
| |   |                                                                                                                                                                                                                                                                           
| | • | assume direct responsibility for the appointment, compensation, resignation, dismissal and the overseeing of the external auditors, including review of the external audit, its cost
and effectiveness;                                                                   
| |   |                                                                                                                                                                                                                                                                           
| | • | pre-approve non-audit work to be carried out by the external auditors and the fees to be paid for that
    work along with the monitoring of the external auditors independence;                                                                                         
| |   |                                                                                                                                                                                                                                                                           
| | • | oversee the process for dealing with complaints received by the Group regarding accounting, internal accounting controls or auditing matters and the confidential anonymous submission
by employees of concerns regarding questionable accounting or auditing matters; and
| |   |                                                                                                                                                                                                                                                                           
| | • | adopt and oversee a specific Code of Ethics for the Chief Executive, the Finance Director, the Deputy Finance Director and all other members of the Executive Committee which is
consistent with the Companys overall statement
of business ethics.                      

The Committee regularly invites
      the auditors to attend its meetings, along with the Finance Director and
      the Director of Group Assurance, who has direct access to the Chairman of
    the Audit Committee. Discussions are, however, held in private where appropriate.
    The Chairman of the Board attends at the invitation of the
Committees Chairman.


The Audit Committee meets at least four times
a year.


|(ii) | Remuneration Committee
|---- | ----------------------

The Remuneration Committee
      consists of George Fairweather, Drummond Hall, Sir Tim Lankester and Sara
      Weller and is chaired by Sara Weller. The Remuneration Committee meets
      at least three times a year. The Chairman of the Board attends by invitation
      of the Remuneration Committees Chairman. The Chief Executive also
      attends by invitation, but not on matters related to his own remuneration.
      The Remuneration Committee advises the Board on overall remuneration policy
      as well as succession planning, management and development. The Remuneration
Committee also determines, on behalf of the


53

---



Back to Contents

Board, and with the benefit of advice from external consultants and the HR Director and Head of Reward, the remuneration packages of the Executive Directors. The remuneration of the Non-Executive Directors is determined by
the Board.

|(iii) | Nomination Committee
|----- | --------------------

The Nomination Committee is chaired by Roger Carr, the Chairman of the Board, and comprises Roger Carr, George Fairweather, Drummond Hall, Sir Tim Lankester, Sara Weller and Tim Clarke. This
committee carries out the selection process for the appointment of Executive and Non-Executive Directors to the Board and proposes names for approval by the Board. It also considers succession planning.


|(iv) | Executive Committee
|---- | -------------------

The Executive Committee, chaired
      by the Chief Executive, Tim Clarke, consists of the Executive Directors
      (Mike Bramley, Tim Clarke, Tony Hughes and Karim Naffah), and senior management
      of the Company (John Butterfield, Bronagh Kennedy, Adam Martin, Richard
      Pratt, Jeremy Townsend, Adam Fowle and Alison Wheaton). It meets every
      four weeks and has everyday responsibility for the running of the Groups business. It develops the
Groups strategy and revenue and capital budgets for Board approval. It
reviews and recommends to the Board any significant investment proposals. It
considers employment issues and ensures that the Group has an appropriate pool
of talent and
develops senior management succession plans.


Service Agreements

It is the Companys normal
      policy to provide Executive Directors with rolling 12-month contracts,
      which provide for 12 months notice from the Company and six months notice
      from the Director. Service contracts provide for summary termination in
      the event of gross misconduct. In other circumstances any severance payment
      would normally be based on a valuation of net pay and benefits for any
      unexpired notice period on the
expectation that the Director had made reasonable attempts to mitigate his loss.
      Benefits normally include membership of a pension scheme and a healthcare
      scheme and use of a company car. It has been decided to introduce, for
      new appointees, phased
compensation payments on loss of office.


54

---



Back to Contents

EMPLOYEES

The Group employed an average of 37,411 people worldwide in fiscal 2005. Of these, approximately 43% were employed on a full-time basis (24% in Germany) and 57% were employed on a part-time
  basis (76% in Germany).


The table below analyzes the distribution of the average number of employees for the last three fiscal years by division and by geographic region.


|                                                |  | United
  Kingdom |        | Rest of
    Europe |  | Total | 
|----------------------------------------------- |  | ---------------- | ------ | ------------------ |  | ----- | 
|                                                |  |                  |        |                    |  |       | 
|Average number of employees during fiscal 2005: |  |                  |        |                    |  |       | 
|Retail                                          |  |                  | 35,920 |                    |  | 1,487 | 
|SCPD                                            |  |                  | 4      |                    |  |      | 
|                                                |  |                  |        |                    |  |       | 
|Total                                           |  |                  | 35,924 |                    |  | 1,487 | 
|                                                |  |                  |        |                    |  |       | 
|Average number of employees during fiscal 2004: |  |                  |        |                    |  |       | 
|Retail                                          |  |                  | 35,638 |                    |  | 1,562 | 
|SCPD                                            |  |                  | 7      |                    |  |      | 
|                                                |  |                  |        |                    |  |       | 
|Total                                           |  |                  | 35,645 |                    |  | 1,562 | 
|                                                |  |                  |        |                    |  |       | 
|Average number of employees during fiscal 2003: |  |                  |        |                    |  |       | 
|Retail                                          |  |                  | 35,900 |                    |  | 1,649 | 
|SCPD                                            |  |                  | 7      |                    |  |      | 
|                                                |  |                  |        |                    |  |       | 
|Total                                           |  |                  | 35,907 |                    |  | 1,649 | 
|                                                |  |                  |        |                    |  |       | 

Less than 1% of the
      Groups
      UK employees are covered by collective bargaining agreements with trade
      unions, under which wages are negotiated annually or through procedural
      agreements. The Group believes that it will be able to continue to conduct
its relationships with employees and trade unions in a satisfactory manner.


55

---



Back to Contents

SHARE OWNERSHIP

The following table shows the Directors and
    senior managers holdings of M and B 71/12p
    ordinary shares
as at February 10, 2006.


|                   |  | Number of71/12
        p ordinary shares |        
|------------------ |  | ---------------------------------------- | -------
|                   |  |                                          |        
|Directors          |  |                                          |        
|Mike Bramley       |  |                                          | 115,124
|Roger Carr         |  |                                          | 11,067 
|Tim Clarke         |  |                                          | 556,586
|George Fairweather |  |                                          | 2,000  
|Drummond Hall      |  |                                          | 2,500  
|Tony Hughes        |  |                                          | 133,215
|Sir Tim Lankester  |  |                                          | 1,227  
|Karim Naffah       |  |                                          | 246,873
|Sara Weller        |  |                                          | 3,325  
|Senior Management  |  |                                          |        
|John Butterfield   |  |                                          | 3,053  
|Adam Fowle         |  |                                          | 5,897  
|Bronagh Kennedy    |  |                                          | 36,444 
|Adam Martin        |  |                                          | 117,367
|Richard Pratt      |  |                                          | 30,159 
|Jeremy Townsend    |  |                                          |       
|Alison Wheaton     |  |                                          | 2,315  

The above shareholdings are all beneficial interests
    and include shares held on behalf of Executive Directors by the trustees
    of the Mitchells & Butlers Share Incentive Plan. None of the Directors
    holds 1% or more of the outstanding M and B 71/12pordinary
    shares. None of the
Directors has a beneficial interest in the shares of any subsidiary.


As at January 31, 2006 the Executive Directors technical interest in unallocated Mitchells & Butlers ordinary shares held by the trustees of the Mitchells & Butlers Share
Incentive Plan and the Mitchells & Butlers Employee Benefit Trust was 47,729 and 337,141 shares respectively.


56

---



Back to Contents

SHARE OPTIONS

The interests of the Companys Directors and
    the members of the Executive Committee in options over M and B of 71/12p ordinary shares at February 10, 2006 were as follows:


|Share Options (i) (ii) |  |  |                   |  |  |                    |  |  |              |  |  |                   | 
|---------------------- |  |  | ----------------- |  |  | ------------------ |  |  | ------------ |  |  | ----------------- | 
|                       |  |  |                   |  |  |                    |  |  |              |  |  |                   | 
|Name                   |  |  | Date of grant     |  |  | Exercise price (p) |  |  | No of shares |  |  | Expiry date       | 
|                       |  |  |                   |  |  |                    |  |  |              |  |  |                   | 
|Mike Bramley           |  |  | May 28, 2003      |  |  | 219.00             |  |  | 296,800      |  |  | May 28, 2013      | 
|                       |  |  | May 24, 2004      |  |  | 252.50             |  |  | 265,346      |  |  | May 24, 2014      | 
|                       |  |  | March 1, 2001     |  |  | 259.73             |  |  | 101,044      |  |  | March 1, 2011     | 
|                       |  |  | May 28, 2002      |  |  | 266.74             |  |  | 131,942      |  |  | May 28, 2012      | 
|                       |  |  | February 25,1999  |  |  | 286.68             |  |  | 69,311       |  |  | February 25, 2009 | 
|                       |  |  | February 18, 1997 |  |  | 305.90             |  |  | 1,948        |  |  | February 18, 2007 | 
|                       |  |  | May 24, 2005      |  |  | 326.10             |  |  | 214,658      |  |  | May 24, 2015      | 
|                       |  |  | March 2, 1998     |  |  | 364.46             |  |  | 4,732        |  |  | March 2, 2008     | 
|                       |  |  | December 3, 2004  |  |  | Nil                |  |  | 98,822       |  |  | December, 2009    | 
|                       |  |  | December 5, 2003  |  |  | Nil                |  |  | 134,298      |  |  | December, 2008    | 
|                       |  |  | February 6, 2006  |  |  | Nil                |  |  | 160,100      |  |  | December, 2010    | 
|Tim Clarke             |  |  | June 27, 2003     |  |  | 169.00             |  |  | 9,423        |  |  | March 31, 2009    | 
|                       |  |  | May 28, 2003      |  |  | 219.00             |  |  | 456,620      |  |  | May 28, 2013      | 
|                       |  |  | May 24, 2004      |  |  | 252.50             |  |  | 403,960      |  |  | May 24, 2014      | 
|                       |  |  | March 1, 2001     |  |  | 259.73             |  |  | 377,177      |  |  | March 1, 2011     | 
|                       |  |  | February 25, 1999 |  |  | 286.68             |  |  | 64,857       |  |  | February 25, 2009 | 
|                       |  |  | February 18, 1997 |  |  | 305.90             |  |  | 53,445       |  |  | February 18, 2007 | 
|                       |  |  | May 24, 2005      |  |  | 326.10             |  |  | 318,920      |  |  | May 24, 2015      | 
|                       |  |  | March 2, 1998     |  |  | 364.46             |  |  | 50,383       |  |  | March 2, 2008     | 
|                       |  |  | December 3, 2004  |  |  | Nil                |  |  | 146,822      |  |  | December, 2009    | 
|                       |  |  | December 5, 2003  |  |  | Nil                |  |  | 204,454      |  |  | December, 2008    | 
|                       |  |  | February 6, 2006  |  |  | Nil                |  |  | 235,702      |  |  | December, 2010    | 
|Tony Hughes            |  |  | June 27, 2003     |  |  | 169.00             |  |  | 5,473        |  |  | March 31, 2007    | 
|                       |  |  | May 28, 2003      |  |  | 219.00             |  |  | 296,800      |  |  | May 28, 2013      | 
|                       |  |  | May 24, 2004      |  |  | 252.50             |  |  | 265,346      |  |  | May 24, 2014      | 
|                       |  |  | March 1, 2001     |  |  | 259.73             |  |  | 120,251      |  |  | March 1, 2011     | 
|                       |  |  | May 28, 2002      |  |  | 266.74             |  |  | 154,489      |  |  | May 28, 2012      | 
|                       |  |  | February 25, 1999 |  |  | 286.68             |  |  | 34,516       |  |  | February 25, 2009 | 
|                       |  |  | February 18, 1997 |  |  | 305.90             |  |  | 34,795       |  |  | February 18, 2007 | 
|                       |  |  | May 24, 2005      |  |  | 326.10             |  |  | 214,658      |  |  | May 24, 2015      | 
|                       |  |  | March 2, 1998     |  |  | 364.46             |  |  | 43,145       |  |  | March 2, 2008     | 
|                       |  |  | December 3, 2004  |  |  | Nil                |  |  | 98,822       |  |  | December, 2009    | 
|                       |  |  | December 5, 2003  |  |  | Nil                |  |  | 134,298      |  |  | December, 2008    | 
|                       |  |  | February 6, 2006  |  |  | Nil                |  |  | 160,100      |  |  | December, 2010    | 
|Karim Naffah           |  |  | June 28, 2004     |  |  | 209.00             |  |  | 4,509        |  |  | March 31, 2008    | 
|                       |  |  | May 28, 2003      |  |  | 219.00             |  |  | 319,630      |  |  | May 28, 2013      | 
|                       |  |  | May 24, 2004      |  |  | 252.50             |  |  | 285,148      |  |  | May 24, 2014      | 
|                       |  |  | March 1, 2001     |  |  | 259.73             |  |  | 158,665      |  |  | March 1, 2011     | 
|                       |  |  | February 25, 1999 |  |  | 286.68             |  |  | 23,382       |  |  | February 25, 2009 | 
|                       |  |  | February 18, 1997 |  |  | 305.90             |  |  | 83,508       |  |  | February 18, 2007 | 
|                       |  |  | May 24, 2005      |  |  | 326.10             |  |  | 226,924      |  |  | May 24, 2015      | 
|                       |  |  | March 2, 1998     |  |  | 364.46             |  |  | 9,185        |  |  | March 2, 2008     | 
|                       |  |  | December 3, 2004  |  |  | Nil                |  |  | 104,470      |  |  | December, 2009    | 
|                       |  |  | December 5, 2003  |  |  | Nil                |  |  | 144,320      |  |  | December, 2008    | 
|                       |  |  | February 6, 2006  |  |  | Nil                |  |  | 168,994      |  |  | December, 2010    | 
|Roger Carr             |  |  |                   |  |  |                   |  |  |             |  |  |                   | 
|George Fairweather     |  |  |                   |  |  |                   |  |  |             |  |  |                   | 
|Drummond Hall          |  |  |                   |  |  |                   |  |  |             |  |  |                   | 
|Sara Weller            |  |  |                   |  |  |                   |  |  |             |  |  |                   | 
|Sir Tim Lankester      |  |  |                   |  |  |                   |  |  |             |  |  |                   | 
|                       |  |  |                   |  |  |                    |  |  |              |  |  |                   | 
|Footnotes on page 58.  |  |  |                   |  |  |                    |  |  |              |  |  |                   | 

57

---



Back to Contents

|Name             |  |  | Date of grant      |  |  | Exercise price(p) |  |  | No of shares |  |  | Expiry date        | 
|---------------- |  |  | ------------------ |  |  | ----------------- |  |  | ------------ |  |  | ------------------ | 
|                 |  |  |                    |  |  |                   |  |  |              |  |  |                    | 
|John Butterfield |  |  | May
      28, 2003 |  |  | 219.00            |  |  | 94,170       |  |  | May
      28, 2013 | 
|                 |  |  | May 24, 2004       |  |  | 252.50            |  |  | 92,574       |  |  | May 24, 2014       | 
|                 |  |  | February 25, 1999  |  |  | 286.68            |  |  | 25,886       |  |  | February 25, 2009  | 
|                 |  |  | May 24, 2005       |  |  | 326.10            |  |  | 73,788       |  |  | May 24, 2015       | 
|                 |  |  | December 3, 2004   |  |  | Nil               |  |  | 49,410       |  |  | December, 2009     | 
|                 |  |  | December 5, 2003   |  |  | Nil               |  |  | 68,150       |  |  | December, 2008     | 
|                 |  |  | May 23, 2003       |  |  | Nil               |  |  | 25,772       |  |  | December, 2007]    | 
|                 |  |  | February 6, 2006   |  |  | Nil               |  |  | 67,838       |  |  | December, 2010     | 
|Bronagh Kennedy  |  |  | June 28, 2004      |  |  | 209.00            |  |  | 2,254        |  |  | March 31, 2008     | 
|                 |  |  | May 28, 2003       |  |  | 219.00            |  |  | 131,840      |  |  | May 28, 2013       | 
|                 |  |  | May 24, 2004       |  |  | 252.50            |  |  | 114,356      |  |  | May 24, 2014       | 
|                 |  |  | May 28, 2002       |  |  | 266.74            |  |  | 79,889       |  |  | May 28, 2012       | 
|                 |  |  | February 25, 1999  |  |  | 286.68            |  |  | 10,856       |  |  | February 25, 2009  | 
|                 |  |  | September 4, 1996  |  |  | 291.71            |  |  | 14,752       |  |  | September 4, 2006  | 
|                 |  |  | February 18, 1997  |  |  | 305.90            |  |  | 15,866       |  |  | February 18, 2007  | 
|                 |  |  | May 24, 2005       |  |  | 326.10            |  |  | 91,076       |  |  | May 24, 2015       | 
|                 |  |  | March 2, 1998      |  |  | 364.46            |  |  | 19,485       |  |  | March 2, 2008      | 
|                 |  |  | December 3, 2004   |  |  | Nil               |  |  | 60,988       |  |  | December, 2009     | 
|                 |  |  | December 5, 2003   |  |  | Nil               |  |  | 84,186       |  |  | December, 2008     | 
|                 |  |  | February 6, 2006   |  |  | Nil               |  |  | 83,668       |  |  | December, 2010     | 
|Adam Martin      |  |  | June 27, 2003      |  |  | 169.00            |  |  | 5,473        |  |  | March 31, 2007     | 
|                 |  |  | May 28, 2003       |  |  | 219.00            |  |  | 114,260      |  |  | May 28, 2013       | 
|                 |  |  | May 24, 2004       |  |  | 252.50            |  |  | 108,910      |  |  | May 24, 2014       | 
|                 |  |  | May 24, 2005       |  |  | 326.10            |  |  | 86,859       |  |  | May 24, 2015       | 
|                 |  |  | March 2, 1998      |  |  | 364.46            |  |  | 21,433       |  |  | March 2, 2008      | 
|                 |  |  | December 3, 2004   |  |  | Nil               |  |  | 58,164       |  |  | December, 2009     | 
|                 |  |  | December 5, 2003   |  |  | Nil               |  |  | 76,168       |  |  | December, 2008     | 
|                 |  |  | February 6, 2006   |  |  | Nil               |  |  | 79,898       |  |  | December, 2010     | 
|Richard Pratt    |  |  | June 27, 2003      |  |  | 169.00            |  |  | 9,423        |  |  | March 31, 2009     | 
|                 |  |  | May 28, 2003       |  |  | 219.00            |  |  | 106,730      |  |  | May 28, 2013       | 
|                 |  |  | May 24, 2004       |  |  | 252.50            |  |  | 92,574       |  |  | May 24, 2014       | 
|                 |  |  | March 1, 2001      |  |  | 259.73            |  |  | 47,877       |  |  | March 1, 2011      | 
|                 |  |  | February 25, 1999  |  |  | 286.68            |  |  | 29,784       |  |  | February 25, 2009  | 
|                 |  |  | February 18, 1997  |  |  | 305.90            |  |  | 15,865       |  |  | February 18, 2007  | 
|                 |  |  | May 24, 2005       |  |  | 326.10            |  |  | 73,788       |  |  | May 24, 2015       | 
|                 |  |  | March 2, 1998      |  |  | 364.46            |  |  | 17,536       |  |  | March 2, 2008      | 
|                 |  |  | December 3, 2004   |  |  | Nil               |  |  | 49,410       |  |  | December, 2009     | 
|                 |  |  | December 5, 2003   |  |  | Nil               |  |  | 68,150       |  |  | December, 2008     | 
|                 |  |  | February 6, 2006   |  |  | Nil               |  |  | 67,838       |  |  | December, 2010     | 
|Alison Wheaton   |  |  | May 27, 2003       |  |  | 169.00            |  |  | 5,473        |  |  | March 31, 2007     | 
|                 |  |  | May 28, 2003       |  |  | 219.00            |  |  | 106,730      |  |  | May 28, 2013       | 
|                 |  |  | May 24, 2004       |  |  | 252.50            |  |  | 100,742      |  |  | May 24, 2014       | 
|                 |  |  | March 1, 2001      |  |  | 259.73            |  |  | 49,826       |  |  | March 1, 2011      | 
|                 |  |  | May 28, 2002       |  |  | 266.74            |  |  | 64,579       |  |  | May 28, 2012       | 
|                 |  |  | February 25, 1999  |  |  | 286.68            |  |  | 25,330       |  |  | February 25, 2009  | 
|                 |  |  | February 3, 1998   |  |  | 364.46            |  |  | 16,701       |  |  | February 3, 2008   | 
|                 |  |  | May 24, 2005       |  |  | 326.10            |  |  | 80,113       |  |  | May 24, 2015       | 
|                 |  |  | December 3, 2004   |  |  | Nil               |  |  | 53,646       |  |  | December, 2009     | 
|                 |  |  | December 5, 2003   |  |  | Nil               |  |  | 68,150       |  |  | December, 2008     | 
|                 |  |  | May 23, 2003       |  |  | Nil               |  |  | 29,208       |  |  | December, 2007     | 
|                 |  |  | February 6, 2006   |  |  | Nil               |  |  | 73,492       |  |  | December, 2010     | 
|Jeremy Townsend  |  |  | June 23, 2005      |  |  | 330.50            |  |  | 83,207       |  |  | June 23, 2015      | 
|                 |  |  | June 21, 2005      |  |  | Nil               |  |  | 41,620       |  |  | December, 2009     | 
|                 |  |  | February 6, 2006   |  |  | Nil               |  |  | 75,376       |  |  | December 2010      | 
|Adam Fowle       |  |  | May 24, 2005       |  |  | 326.10            |  |  | 120,971      |  |  | May 24, 2015       | 
|                 |  |  | May 20, 2005       |  |  | Nil               |  |  | 66,590       |  |  | December, 2009     | 
|                 |  |  | February 6, 2006   |  |  | Nil               |  |  | 110,276      |  |  | December, 2010     | 
|                 |  |  |                    |  |  |                   |  |  |              |  |  |                    | 
|                 |  |  |                    |  |  |                   |  |  |              |  |  |                    | 
|                 |  |  |                    |  |  |                   |  |  |              |  |  |                    | 

|(i)  | Share options are granted under the Companys
      Executive Share Option Plan and the Sharesave Plan. In addition, participation
      in the PRSP is by means of an option, which is exercisable for nominal consideration
      of £1 per award, once the performance conditions have been satisfied.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | No changes were made to the shares under option
      in any of the Groups option plans as a result of the consolidation
      of the Companys share capital on December 2, 2003.                                                                                                                      

58

---



Back to Contents

EMPLOYEE SHARE PLANS


M and B Groups remuneration policy is designed
    to attract the best employees; provide appropriate executive retention strength
    against competitive attempts to recruit its executives; require Directors
    to build and maintain a significant level of M and B share ownership to further
    align their interests with those of shareholders; and recognize that M and
    B is a UK listed company owned predominantly by UK-based investors. As a
result, management believes that incentive arrangements comply, as far as is
    practicable, with the basic tenet of UK investor guidelines that share incentives
should be linked to performance criteria.


A minimum level of M and B share ownership has been set for the Executive Directors. The Chief Executive should own shares valued at three times his salary and other Executive Directors at two
times their salary. It is expected that the Directors will satisfy this requirement within five years from April 2003, the date of admission of M and B shares to the London Stock Exchange, although this timeframe may be reviewed. Until the minimum
level of M and B share ownership is satisfied, the Directors may not sell any M and B shares including any M and B shares acquired via any employee share plans (other than to finance the cost of exercising options and any tax and social security
liabilities arising from the employee share plans or in exceptional circumstances, for example financial hardship). Messrs Clarke and Naffah have both met their minimum holding requirements. For any future Executive Director appointment, it is
proposed to reduce the mandatory shareholding requirements to one times salary, subject to this continuing to be reflective of market practice at that time. M and B shares acquired through certain awards programs will count towards the minimum level
once the awards vest or are made, depending on the program.


The Company has established the following employee share plans
(together the Employee Share Plans):


The M and B Sharesave Plan (Sharesave);


The M and B Share
        Incentive Plan (SIP);


The M and B Executive Share Option Schemes (EXSOP);


The M and B Performance
      Restricted Share Plan (PRSP);


The M and B Short
      Term Deferred Incentive Plan (STDIP); and


The M and B Employee
      Benefit Trust.


In addition to the executive
      share plans described above in Item 6. Directors, Senior Management
      and Employees  Compensation,
      the principal terms of the Employee Share Plans are set out below. M and
      B shares may also be issued in respect of options granted in exchange for
      options under the Six Continents Executive Share Option Scheme 1995.


Key decisions regarding
      the EXSOP, the PRSP and the STDIP and all decisions relating to Executive
      Directors are made by the Companys Remuneration Committee.


|The M and B Sharesave Plan
|--------------------------

Sharesave is available
      to all eligible employees and provides for the grant of options to subscribe
      for M and B shares at the higher of the nominal value and not less than
      80% of the market value of the shares (determined over the three days prior
      to the invitation date). Options normally become exercisable for six months
      from the end of the savings contract, which may be of three or five years duration.
      In June 2005, options were granted to 1,382 employees over 1,162,897 shares
      at 258.5p per share.


|The M and B Share Incentive Plan
|--------------------------------

The SIP allows eligible
      employees to participate in awards of M and B shares under a HM Revenue
      and Customs (HMRC) approved share incentive plan. Awards of
      M and B shares under the SIP are not pensionable. All employees and Executive
      Directors of the Company and any participating subsidiaries may participate
      in the SIP. When the SIP is operated, all eligible employees must be invited
      to participate. In 2005, 309,993 shares
were allocated by the SIP trustee as free shares to 7,917 employees.


|M and B Employee Benefit Trust
|------------------------------

The M and B Employee Benefit Trust may acquire M and B shares and hold them for the benefit of employees and former employees of the Group and their spouses and children. The Trust may be used
to provide M and B shares to employees under some or all of the Employee Share Plans.


During the year, the Employee Benefit Trust acquired
    1 million shares and allocated 3,453,846 shares to employees under the terms
  of the employee share plans.


59

---



Back to Contents



|ITEM 7.MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|--------------------------------------------------------

MAJOR SHAREHOLDERS

As far as is known to management, M and B is not directly or indirectly owned or controlled by another corporation or by any government or any other person. Based on the current notification to
M and B under the provisions of Section 198 of the Companies Act, M and B has been advised of the following substantial interests (3% or more) in its shares as at February 10, 2006:


|                      |  | January 31, 2005 |            |   |   |     | February
    14, 2006 |  |            |   | 
|--------------------- |  | ---------------- | ---------- | - | - | --- | --------------------- |  | ---------- | - | 
|Shareholder           |  | Shares           |            |   | % |     | Shares                |  |            | % | 
|                      |  |                  |            |   |   |     |                       |  |            |   | 
|Aviva plc             |  |                  | 16,697,560 |   |   | 3.2 |                       |  | 20,612,762 |   | 
|AXA S.A.              |  |                  |           | * |   |    | *                     |  | 81,781,009 |   | 
|Barclays PLC          |  |                  |           | * |   |    | *                     |  | 15,031,620 |   | 
|Deutsche Bank         |  |                  |           | * |   |    | *                     |  | 15,865,788 |   | 
|Legal & General       |  |                  | 25,602,956 |   |   | 3.5 |                       |  | 25,602,956 |   | 
|Lone Pine Capital LLC |  |                  |           | * |   |    | *                     |  | 15,090,182 |   | 
|Standard Life         |  |                  | 15,771,452 |   |   | 3.0 |                       |  |           | * | 
|                      |  |                  |            |   |   |     |                       |  |            |   | 

| | 
| | 

|*These Shareholders may have had a non disclosable interest (less than 3% of the issued share capital) on the above dates.
|--------------------------------------------------------------------------------------------------------------------------

M and B does not know of any arrangements the operation of which may result in a change in its control.


No shareholder has voting rights different to those of any other shareholder.


As of January 31, 2006, there was a total of 78,813 recorded holders of ordinary shares of whom 214 had registered addresses in the United States and held a total of 110,230 ordinary shares
(0.02% of the total shares issued). Since certain ordinary shares are registered in the names of nominees, the number of shareholders of record may not be representative of the number of beneficial owners.


RELATED PARTY TRANSACTIONS


Other than as herein described, the Group has entered into no related party transactions or loans.


During part of fiscal 2003, the Group was within the Six Continents Group, and as a result the agreements entered into in connection with the Separation were with a related party at that
time.


|Summary of Main Agreements Relating to the Separation                                                         
|--------------------------------------------------------------------------------------------------------------
|                                                                                                              
|Share Purchase Agreement to
              effect the M and B Group
Transfer (the M and B Group Transfer SPA)

Under the M and B Group
      Transfer SPA, which was entered into between the Group and the Six Continents
      Group after M and B became the holding company of the Six Continents Group,
      Six Continents PLC transferred at book value the whole of the issued share
      capital of various retail companies, namely Six Continents Retail Limited
      and Six Continents Retail Germany GmbH, and their respective subsidiaries
      and subsidiary undertakings, and SCPD to
the Group (the M and B Group Transfer).


Under the M and B Group Transfer SPA, the Six Continents Group gave no warranties (other than as to ownership of the shares in the companies being transferred) and agreed to give certain
limited indemnities to M and B.


These indemnities were given to protect M and B Group against liabilities which the M and B Group may incur and which relate exclusively or predominantly to the InterContinental Group entities.
In addition, InterContinental Group indemnified the Group in respect of 50% of certain contingent liabilities which do not relate exclusively or predominantly to either M and B Group or the InterContinental Group entities. These shared liabilities
relate primarily to businesses which have been disposed of by the Six Continents Group or its subsidiaries in the past and where warranties or indemnities were given to third parties.


The M and B Group Transfer SPA also contained provisions relating to the allocation of tax liabilities and the conduct of the tax affairs of M and B Group and the InterContinental Group
relating to periods beginning before the separation was effected.


|Separation Agreement
|--------------------

Following the M and B Group Transfer, an agreement
    was entered into between InterContinental Group and the M and B Group under
    which M and B Group agreed to transfer on the Separation date the  whole
    of the issued share capital of the Six Continents Group (which at that point
    only owned the hotels business and soft drinks business) to InterContinental
    Group in consideration for which InterContinental Group allotted and issued

InterContinental Group shares to the holders of M and B shares (the Separation
Agreement). Each shareholder, on the register of members of M and B, immediately
before the transfer of the Six Continents PLC shares, received one  InterContinental
Hotels Group PLC share for every M and B share they held at that time. The holders
of M and B ADRs on the ADR register maintained by the Depositary received one
InterContinental Group ADS for every M and B ADS. A shareholder or ADR
holder of M and B was not required to make
any payment for the InterContinental Group shares or
ADSs. The Separation did not affect the number of issued M and B shares or M
and B ADSs.


60

---



Back to Contents

All InterContinental Group shares received by M and B shareholders (including the Depositary) in connection with the Separation were credited as fully paid.


Under the Separation Agreement, M and B Group gave no warranties (other than as to ownership of the shares in Six Continents PLC as at Separation) and agreed to give certain limited indemnities
to InterContinental Group. These indemnities were given to protect InterContinental Group against liabilities which InterContinental Group may incur but which relate exclusively or predominantly to Retail or SCPD. In addition, M and B Group
indemnified InterContinental Group in respect of 50% of certain contingent liabilities which do not relate exclusively or predominantly to the retail business and SCPD or to the hotels business and soft drinks business. These shared contingent
liabilities relate primarily to businesses which have been disposed of by the Six Continents Group or its subsidiaries in the past and where warranties and indemnities were given.


|Relationship with InterContinental Group
|----------------------------------------

Following the Separation, M and B and InterContinental Hotels Group PLC each operate as separate listed companies. There are no cross-directorships between M and B and InterContinental Hotels
Group PLC. The Transitional Services Agreement put in place on Separation expired as of December 31, 2003, with no ongoing obligations.


|Franchise Agreement for Express by Holiday Inn
|----------------------------------------------

Prior to Separation, a franchise agreement on arms length terms was entered into between an InterContinental Group company (the Licensor) and a Group company (the
Licensee), pursuant to which the Licensor granted the Licensee the right to operate Express by Holiday Inn hotels operated by the Licensee. This license includes the rights to use the reservations and other systems of the Licensor, the
trademarks and service marks and such other elements as designated from time to time by the Licensor, designed to identify Express by Holiday Inn hotels. In return, the Licensee pays a royalty to the Licensor, which is a pre-determined
percentage of room revenues together with certain other fees as specified in the agreement. Each hotel has its own license agreement, which is typically for a ten-year period from the date of opening. The earliest license will expire in July
2006.


|Britvic Supply Agreement
|------------------------

On February 7, 2003, the Group and Britvic extended the terms of an existing Britvic supply agreement for five years from that date. Under the agreement, the Group has a minimum purchase
obligation for Britvic soft drinks across its estate which is well within the Groups actual usage levels.


INTERESTS OF EXPERTS AND COUNSEL

Not applicable.


61

---



Back to Contents

|ITEM 8.FINANCIAL
    INFORMATION
|--------------------------------

FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION

|Financial Statements
|--------------------

For details of the Groups audited financial statements, and the related report of the independent registered public accounting firm filed as part of this annual report, which commence on
page F-1, see Item 18. Financial Statements.


|Legal Proceedings
|-----------------

Neither the Company nor any member of the Group is or has been involved in any legal or arbitration proceedings which may have, or have had during the 12 months preceding the date of this
document, a significant effect on the financial position or results of operations of the Group nor, so far as the Group is aware, are any such proceedings pending or threatened by or against the Company or any member of the Group.


|Dividends
|---------

See Item 3. Key Information  Selected Consolidated Financial Information  Dividends.


SIGNIFICANT CHANGES


No significant change
      has occurred to the Companys financial position since October 1,
      2005, the date of the most recent financial statements included in this
annual report.


62

---



Back to Contents

|ITEM 9.THE
            OFFER AND LISTING
|----------------------------------------

The principal trading
      market for the Companys ordinary shares is the London Stock Exchange
      on which they have been traded since Separation on April 15, 2003. On April
      13, 2005, the Company announced its intention to terminate the ADR program
      and delist from the New York Stock Exchange. On July 19, 2005, the ADR
      program was terminated. The Company was delisted from the NYSE on August
5, 2005.


The following table shows, for the fiscal periods indicated, the reported high and low middle market quotations (which represent an average of closing bid and ask prices) for the ordinary
shares on the London Stock Exchange, as derived from the Daily Official List of the UK Listing Authority, and the highest and lowest sales prices of the ADSs as reported on the New York Stock Exchange composite tape.


|                                          |  | £ per
ordinary share |      | $ per ADS* | 
|----------------------------------------- |  | -------------------- | ---- | ---------- | 
|                                          |  |                      |      |            | 
|                                          |  |                      | High |            | 
|                                          |  |                      |      |            | 
|Fiscal 2005                               |  |                      |      |            | 
|Annual high and low                       |  |                      | 3.90 |            | 
|First quarter                             |  |                      | 3.40 |            | 
|Second quarter                            |  |                      | 3.47 |            | 
|Third quarter                             |  |                      | 3.55 |            | 
|Fourth quarter                            |  |                      | 3.90 |            | 
|Fiscal 2004                               |  |                      |      |            | 
|Annual high and low                       |  |                      | 2.84 |            | 
|First quarter                             |  |                      | 2.40 |            | 
|Second quarter                            |  |                      | 2.63 |            | 
|Third quarter                             |  |                      | 2.80 |            | 
|Fourth quarter                            |  |                      | 2.84 |            | 
|Month end                                 |  |                      |      |            | 
|August 2005                               |  |                      | 3.67 |            | 
|September 2005                            |  |                      | 3.90 |            | 
|October 2005                              |  |                      | 3.70 |            | 
|November 2005                             |  |                      | 3.89 |            | 
|December 2005                             |  |                      | 4.27 |            | 
|January 2006                              |  |                      | 4.20 |            | 
|February 2006 (through February 10, 2006) |  |                      | 4.06 |            | 

|                                                         | 
|-------------------------------------------------------- | 
|*Until termination of the ADR programme on July 19, 2005
|                                                        



PLAN OF DISTRIBUTION


Not applicable.




MARKETS


The principal market for trading in the ordinary shares is the London Stock Exchange. Trading on the London Stock Exchange commenced for regular trading on April 15, 2003 under the symbol
MAB.


On July 19, 2005, the Group voluntarily terminated its ADR program and on August 5, 2005, it delisted from the New York Stock Exchange. The Group decided to terminate the ADR program and delist
because, given the relatively low participation in the ADR program, it did not believe that the benefits of maintaining the program and listing justified the additional administration. Holders of ADRs were entitled to exchange their M and B ADSs by
September 16, 2005 for the appropriate number of underlying M and B ordinary shares. On September 19, 2005, the Bank of New York, as depositary for the ADR program, sold the ordinary shares in respect of M and B ADSs not submitted for exchange by
September 16.


63

---



Back to Contents

SELLING SHAREHOLDERS

Not applicable.


DILUTION

Not applicable.


EXPENSES OF THE ISSUE

Not applicable.




64

---



Back to Contents

|ITEM 10.ADDITIONAL INFORMATION
|------------------------------

SHARE
  CAPITAL

Not applicable.


MEMORANDUM
  AND ARTICLES OF ASSOCIATION

A description of the Companys Memorandum
    and Articles of Association is incorporated herein by reference to Item 10
    of the Companys registration statement on Form 20-F filed March 23,
    2003 (file no. 001-31653).


In addition, on February 2, 2006, the Companys
    shareholders approved amendments to its Articles of Association including
    one that would allow the Board of Directors to require certain US shareholders
    to sell their ordinary shares so that the Group may be certain that the number
    of its US shareholders is below the appropriate threshold to enable it to
    deregister. Under the provision, the Directors can compel persons holding
    or having an interest in the Companys shares to provide information,
    to the extent known, relating to the ownership of the shares. Shareholders
    and certain other interest persons are required to notify the Directors if
    the shares in which they are interested are held by or for US holders, and
    the Directors will maintain a register of US holders. The Directors may, at
    their discretion and without limit in time, require shares held by or for
    US holders to be sold to non-US holders. If a US holder does not sell the
    shares within 21 days of notice by the Directors, the Directors may sell those
    shares on behalf of that person, who will receive payment for the sale only
    upon surrender of the relevant share certificates.


Although US holders who hold or are interested
    in more than 20,000 shares are excluded from the register of US holders and
    from the compulsory transfer requirements of this provision, the 20,000 share
    threshold can be amended by an ordinary resolution of shareholders.


The redeemable deferred shares and the redeemable
    preference shares have been converted into ordinary shares. The Articles relating
    to these shares have been removed from the Articles of Association, as have
    the summary provisions relating to the rights and qualifications of these
    shares. In addition, Article 163, continuing certain provisions relating to
    historical demerger arrangements, has been removed and is no longer part of
    the Articles of Association.


MATERIAL
  CONTRACTS

The Separation agreements summarized in Item
    7. Major Shareholders and Related Party Transactions  Related Party
    Transactions  Summary of Main Agreements Relating to the Separation
    are material contracts of the Group. In addition, the following contracts
    have been entered into otherwise than in the course of ordinary business by
    members of the Group either (i) in the two years immediately preceding the
    date of this document in the case of contracts which are or may be material
    or (ii) which contain provisions under which any Group member has any obligation
    or entitlement which is material to the Group as at the date of this document.
    To the extent that these agreements include representations, warranties and
    indemnities, such provisions are considered standard in an agreement of that
    nature, save to the extent identified below.


|Securitization Issuer/Borrower Facility
      Agreement
|-------------------------------------------------------

On November 13, 2003, the Group refinanced its
    debt by raising £1,900 million through a securitization of the majority
    of its UK pubs and pub-restaurants business.


As part of the transaction, Mitchells & Butlers
    Finance plc (M and B Finance), a wholly-owned subsidiary, issued
    the following six tranches or classes of secured loan notes to third-party
    investors (the Notes):


Class A1 for £200,000,000 secured floating
  rate notes due 2030;


Class A2 for £550,000,000 secured 5.574% notes
due 2030;


Class A3 for $418,750,000 secured floating rate
  notes due 2030;


Class B1 for £350,000,000 secured 5.965% notes
due 2025;


Class B2 for £350,000,000 secured 6.013% notes
  due 2030; and


Class C for £200,000,000 secured 6.469% notes due
2032.


Under a secured facility agreement dated November
    13, 2003 (the Secured Facility Agreement), the Groups principal
    operating subsidiary, Mitchells & Butlers Retail Limited (M and
    B Retail), and other subsidiaries borrowed from M and B Finance the
    proceeds of the sale of the Notes. The amounts and terms of the Notes are
    linked to the term facilities covered by the Secured Facility Agreement. These
    borrowings are effectively secured by the majority of the UK pub and pub-restaurant
    assets and mirror the six classes of the Notes.


Interest to be paid on each tranche is linked to
    the interest rate payable on the relevant class of secured notes. Interest
    on the Class A1 Notes is payable at three month LIBOR plus a margin of 0.45%,
    stepping up to LIBOR plus 0.90% in December 2010. The Class A3 Notes attract
    interest payable at three month US dollar LIBOR plus a margin of 0.45%, stepping
    up to LIBOR plus 0.90% in December 2010. It was a condition precedent to the
    Secured Facility Agreement that M and B Finance entered into hedging arrangements
    to mitigate the interest rate movement risk inherent in the A1 and A3 floating
    rate notes. (See Item 11. Quantitative and Qualitative Disclosures on Market
    Risk).


65

---



Back to Contents

Further borrowings under the Secured Facility Agreement
    may be agreed. Each new tranche would be financed by the issue of new secured
    notes by M and B Finance. The Secured Facility Agreement includes provisions
    for the prepayment, in whole or in part, of the borrowings, subject to the
    observance of certain conditions. There is a deemed prepayment of such amount
    of the borrowings as is represented by any market purchases of Notes that
    M and B Retail makes.


The Secured Facility Agreement also includes customary
    covenants, warranties and events of default. The Secured Facility Agreement
    sets a minimum free cash flow to debt service coverage ratio of no less than
    1.10:1 as measured on any financial quarter date, in respect of the most recent
    relevant period or the most recent relevant year. M and B Retail and other
    wholly-owned subsidiaries that borrow under the Facility (the Borrowers)
    must also maintain an aggregate consolidated net worth of at least £300,000,000
    at the end of each fiscal year. The Borrower is restricted in its ability
    to: (a) make any payments or other disposal of cash or other funds to an excluded
    Group entity (including payment of dividends, payment of interest, distributions,
    repayment of loans, capital contributions, etc.), except for any payment specifically
    permitted (such as payment to the intra group services companies) unless (i)
    all payments due and payable under the Working Capital Facility (as described
    below) have been made, (ii) no event of default has occurred and is continuing
    or would occur as a result of the making of such payment, and (iii) certain
    minimum free cash flow to debt service ratios (at least 1.3:1) and EBITDA
    to debt service payments ratios (at least 1.7:1) are met; (b) sell, lease,
    transfer or dispose of any secured properties under the Secured Facility Agreement
    without the consent of the security trustee, and proceeds from these permitted
    disposals shall be deposited into a secured account with restrictions on the
    use of such funds (disposal of assets other than secured properties are also
    subject to certain conditions); (c) acquire or substitute any business over
    which security is granted, or would be granted; or (d) incur more than £7,500,000
    in permitted encumbrances or more than £7,500,000 in permitted indebtedness.
    The Company is required to incur or reserve for each fiscal year a required
    maintenance amount equal to 6.4% of the actual aggregate turnover in respect
    of the preceding fiscal year of the secured properties.


Under the terms of the Secured Facility Agreement,
    the termination in whole or in part of an intra group supply agreement and/or
    a management services agreement (both put in place pursuant to the Securitization)
    between the securitized group and the Group companies outside the securitized
    group will be events of default if such termination would be reasonably expected
    to have a material adverse effect on the securitized group. The occurrence
    of any of the events of default will cause the outstanding borrowings to become
    immediately due and payable.


As part of the Securitization, under a Guarantee
    and Reimbursement Agreement, Ambac Assurance UK Limited, a financial guarantee
    insurance company (Ambac), agreed to act as guarantor of M and
    B Retails financial obligations to M and B Finance under the Secured
    Facility Agreement. Ambacs guarantee of M and B Finances obligations
    to repay interest and principal on the Notes in the event that M and B Finance
    is unable to pay such amounts is limited to the Class A noteholders only.
    In the event that Ambac has to make such a payment in respect of the guaranteed
    amounts, Ambac automatically becomes subrogated to the rights of the Class
    A noteholders.


|Working Capital Facility Agreement
|----------------------------------

Certain subsidiaries, including M and B Retail,
    entered into a £60 million revolving credit facility (the Working
    Capital Facility) on November 13, 2003 for a term of five years. The
    Borrower will be entitled to use the Working Capital Facility for working
    capital purposes, ongoing operational expenses and other general corporate
    purposes not otherwise met out of available cashflows from time to time. The
    Working Capital Facility must be fully repaid for at least two days in each
    fiscal securitization year. The covenants, warranties and events of default
    contained within this facility effectively mirror those which govern the Issuer/Borrower
    Facility Agreement.


EXCHANGE
  CONTROLS

There are no restrictions on dividend payments
    to US citizens and there are no UK restrictions on the import or export of
    capital which may affect the availability of cash and cash equivalents for
    use by the Group.


Although there are currently no UK foreign exchange
    control restrictions on the payment of dividends on the ordinary shares, from
    time to time English law imposes restrictions on the payment of dividends
    to persons resident (or treated as so resident) in or governments of (or persons
    exercising public functions in) certain countries (each of the foregoing,
    a Prohibited Person).


There are no restrictions under the articles of
    association or under English law that limit the right of non-resident or foreign
    owners to hold or vote the ordinary shares. However, under current English
    law, ordinary shares may not be owned by a Prohibited Person.


TAXATION

|Taxation of US Holders
|----------------------

This section provides a summary of the material
    US federal income tax and UK tax consequences to US holders, as defined below,
    of owning and disposing of shares of the Company. This section addresses only
    the tax position of a US holder who holds shares as capital assets. It does
    not purport to be a comprehensive description of all the tax considerations
    that may be relevant to an investment decision regarding the shares. In particular,
    this section does not discuss the tax consequences of members of special classes
    of holders subject to special rules including, without limitation, the following:
    (a) certain financial institutions; (b) insurance companies; (c) dealers or
    traders in securities or currencies; (d) tax-exempt entities; (e) persons
    that hold shares as part of a hedging or conversion
    transaction or as a position in a straddle or as part of a synthetic
    security or other integrated transaction for US federal income tax purposes;
    (f) persons that have a functional currency other than the US dollar; (g)
    persons that own (or are deemed to own) 10% or more (by voting power) of the
    Companys share capital; (h) regulated investment companies; (i) real
    estate and investment trusts; and (j) S corporations. This section does not
    generally


66

---



Back to Contents

deal with the position of a US holder who is resident
  or ordinarily resident in the UK for UK tax purposes or who is subject to UK
  taxation on capital gains or income by virtue of carrying on a trade, profession
  or vocation in the UK through a branch, agency or permanent establishment in
  the UK. If a partnership holds shares, the consequences to a partner will generally
  depend upon the status of that partner and the activities of the partnership.
  A partner of a partnership holding shares should consult its own tax advisor.

A US holder is a beneficial owner of shares that
    is for US federal income tax purposes (i) a citizen or resident of the US,
    (ii) a US domestic corporation, (iii) an estate whose income is subject to
    US federal income tax regardless of its source, or (iv) a trust if a US court
    can exercise primary supervision over the trusts administration and
    one or more US persons are authorized to control all substantial decisions
    of the trust.


This section is based on the Internal Revenue Code
    of 1986, as amended, its legislative history, existing and proposed regulations,
    published rulings and court decisions, and on UK tax laws and the published
    practice of the HMRC, all as currently in effect, and on the Double Taxation
    Convention between the US and the UK that was ratified in March 2003 (the
    Treaty). These laws are subject to change, possibly on a retroactive
    basis.


Investors should consult their own tax
    advisor regarding the US federal, state and local, the UK and other tax consequences
    of owning and disposing of shares in their particular circumstances, and in
    particular whether they are eligible for the benefits of the Treaty.


|Taxation of Dividends
|---------------------

Under current UK tax law, the Company
  will not be required to withhold tax at source from dividend payments it makes


Under the Treaty a US holder is not entitled to
    a tax credit from HMRC, and dividends received by the US holder from the Company
    will not, under current UK tax law, be subject to withholding tax by the UK.


|US Federal Income Taxation
|--------------------------

Subject to the passive foreign investment company,
    or PFIC rules discussed below, a US holder is subject to US federal income
    taxation on the gross amount of any dividend paid by the Company out of its
    current or accumulated earnings and profits (as determined for US federal
    income tax purposes). The Company does not maintain calculations of its earnings
    and profits under US federal income tax principles. Therefore, a US holder
    should expect that a distribution will generally be treated as a dividend
    for US federal income tax purposes. Dividends paid to a non-corporate US holder
    in taxable years beginning before January 1, 2009 that constitute qualified
    dividend income will be taxable to the holder at a maximum tax rate of 15%,
    provided that the holder has a holding period of the shares of more than 60
    days during the 120-day period beginning 60 days before the ex-dividend date
    and meets other holding period requirements. Dividends paid by the Company
    with respect to the shares will be qualified dividend income.


A US holder that is eligible for the benefits of
    the Treaty will not be entitled to a UK tax credit, but will also not be subject
    to UK withholding tax. The US holder will include in gross income for US federal
    income tax purposes only the amount of the dividend actually received from
    the Company and the receipt of a dividend will not entitle the US holder to
    a foreign tax credit.


Dividends must be included in income when the US
    holder actually or constructively receives the dividend, and will not be eligible
    for the dividends-received deduction generally allowed to US corporations
    in respect of dividends received from other US corporations. Dividends will
    be income from sources outside the US for the purposes of calculating a holders
    foreign tax credit limitations.The
    rules relating to foreign tax credits and the timing thereof are complex.
    US holders should consult their own tax advisors regarding the application
    of the foreign tax credit limitation to their particular circumstances.


The amount of the dividend distribution will be
    the US dollar value of the pound sterling payments made, determined at the
    spot pound sterling/US dollar rate on the date the dividend distribution is
    includible in income, regardless of whether the payment is in fact converted
    into US dollars. Generally, any gain or loss resulting from currency exchange
    fluctuations during the period from the date the dividend payment is includible
    in income to the date the payment is converted into US dollars will be treated
    as ordinary income or loss and, for foreign tax credit limitation purposes,
    from sources within the US.


|Taxation of Capital Gains
|-------------------------

A US holder who is not resident or ordinarily resident
    for UK tax purposes in the UK will not be liable for UK taxation on capital
    gains realized or accrued on the sale or other disposal of shares unless,
    at the time of the sale or other disposal, the US holder carries on a trade,
    profession or vocation in the UK through a branch, agency or permanent establishment
    and such shares are or have been used, held or acquired for the purposes of
    such trade, profession or vocation, or such branch, agency or permanent establishment.


A US holder of ordinary shares who is an individual
    and who has ceased to be resident or ordinarily resident in the UK for UK
    tax purposes for a period of less than five years and who disposes of the
    shares during that period may be liable on his return to the UK to tax on
    any capital gain realized (subject to any available exemption or relief).


67

---



Back to Contents

|United States Federal Income Taxation
|-------------------------------------

Subject to the PFIC rules discussed below, a US holder that sells or otherwise disposes of shares will recognize a capital gain or loss for US federal income tax purposes equal to the
difference between the US dollar value of the amount realized and its tax basis, determined in US dollars, in the shares. Generally, a capital gain of a non-corporate US holder that is recognized before January 1, 2009 is taxed at a maximum rate of
15% where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the US for foreign tax credit limitation purposes. The deductibility of losses is subject to
limitations.


A US holder that receives foreign currency on the sale or other disposition of the shares will realize an amount equal to the US dollar value of the foreign currency on the date of sale (or, in
the case of a cash basis and electing accrual basis taxpayer, the US dollar value of the foreign currency on the settlement date). If a US holder receives foreign currency on the sale or other disposition of shares , the gain or loss, if any,
recognized on a subsequent sale, conversion or disposition of such foreign currency will be ordinary income or loss and will generally be income or loss from sources within the US for foreign tax credit limitation purposes. However, if such foreign
currency is converted into US dollars on the date received by the US holder, a cash basis and electing accrual basis US holder should not recognize any gain or loss on such conversion.


|PFIC Rules
|----------

The Company believes that it is not, and it does not expect to become, a PFIC, for US federal income tax purposes. However, because this is a factual determination made annually at the end of
the taxable year, there can be no assurance that the Company will not be considered a PFIC for any future taxable year. If the Company were a PFIC in any year, special, possibly materially adverse, consequences would result for US
holders.


A corporation organized outside the US generally will be classified as a PFIC for US federal income tax purposes in any taxable year in which either: (a) at least 75% of its gross income is
passive income, or (b) on average at least 50% of the gross value of its assets is attributable to assets that produce passive income or are held for the production of passive income. Passive income for this purpose generally
includes dividends, interest, royalties, rents and gains from commodities and securities transactions. In determining whether it is a PFIC a foreign corporation is required to take into account a pro rata portion of the income and assets of each
corporation in which it owns, directly or indirectly, at least a 25% interest.


If the Company is regarded as a PFIC in any year during which a US holder owns shares , the US holder will be subject to additional taxes on any excess distributions received from the Company
and any gain realized from the sale or other disposition of shares (whether or not the Company continues to be a PFIC). A US holder has an excess distribution to the extent that distributions on the shares , as the case may be, during a taxable year
exceed 125% of the average amount received during the three preceding taxable years (or, if shorter, the US holders holding period). To compute the tax on the excess distributions or any gain, (i) the excess distribution or the gain is
allocated ratably over the US holders holding period, (ii) the amount allocated to the current taxable year and any year before the Company became a PFIC is taxed as ordinary income in the current year, and (iii) the amount allocated to other
taxable years is taxed at the highest applicable marginal rate in effect for each year and an interest charge is imposed to recover the deemed benefit from the deferred payment of the tax attributable to each year.


Some of the rules with respect to distributions and dispositions described above may be avoided if a US holder makes a valid mark-to-market election (in which case, subject to
certain limitations, the US holder would essentially be required to take into account the difference, if any, between the fair market value and the adjusted tax basis of its shares at the end of a taxable year as ordinary income (or, subject to
certain limitations, ordinary loss), in calculating its income for such year). In addition, gains from an actual sale or other disposition of shares , as the case may be, will be treated as ordinary income, and any losses will be treated as ordinary
losses, to the extent of any mark-to-market gains for prior years. A mark-to-market election is only available to US holders in any tax year that the PFIC stock is considered regularly traded on a qualified
exchange within the meaning of applicable US Treasury regulations. US holders should consult their own tax advisors as to whether the shares would qualify for the mark-to-market election. Once made, such election cannot be revoked without the
consent of the US Internal Revenue Service unless the shares cease to be marketable.


Some of the above rules may also be avoided if a US holder is eligible for and timely makes a valid QEF election (in which case the US holder generally would be required to include
in income on a current basis its pro rata share of the ordinary income and net capital gains of the PFIC). In order to be able to make the QEF election, the Company would be required to provide a US holder with certain information. The Company does
not at present intend to provide the required information.


If the Company is regarded as a PFIC, each US holder of shares must make an annual return on US Internal Revenue Service Form 8621, reporting distributions received and gains realized with
respect to each PFIC in which it holds a direct or indirect interest. The reduced tax rate for dividend income, as discussed above under Taxation of Dividends, is not applicable to dividends paid by a PFIC.


US holders are urged to consult their own tax advisors regarding whether an investment in the shares will be treated as an investment in PFIC stock and the consequences of an investment in a
PFIC.


|Backup Withholding and Information Reporting
|--------------------------------------------

Backup withholding and information reporting requirements may apply to certain payments to US holders of dividends on shares and to the proceeds of a sale or other disposition of shares. The
Company, its agent, a broker, or any paying agent, as the case may be, may be required to withhold tax from any payment that is subject to backup withholding at a rate of 28% (which rate may be subject to change in the future) of such payment if the
US holder fails (a) to furnish its taxpayer identification number, (b) to certify that such US holder is not subject to backup withholding, or (c) to otherwise comply with the applicable requirements of the backup withholding rules. Certain US
holders (including, among others,


68

---



Back to Contents

corporations) are not subject to backup withholding
  and information reporting requirements. Backup withholding is not an additional
  tax. Any amounts withheld under the backup withholding rules from a payment
  to a US holder
generally may be claimed as a credit against such US holders US federal
income tax liability, provided that the required information is furnished to
the US Internal Revenue Service.

|Additional Tax Considerations 
|------------------------------
|                              
|United Kingdom Inheritance Tax

An individual who is
      domiciled in the US (for the purposes of the Estate and Gift Tax Convention)
      and is not a UK national as defined in the Convention will not be subject
      to UK inheritance tax
in respect of shares on the individuals death or on a transfer of the shares
during their lifetime, provided that any applicable US federal gift or estate
tax is paid, unless the shares are part of the business property of a UK permanent
establishment or pertain to a UK fixed base of an individual used for the performance
of independent personal services. Where the shares have been placed in trust
by a settlor, they may be subject to UK inheritance tax unless, when the trust
was
created, the settlor was domiciled in the US and not a UK national. Where shares
are subject to both UK inheritance tax and to US federal gift or estate tax,
the Estate and Gift Tax Convention generally provides a credit against US federal
tax
liabilities for UK inheritance tax paid.


|United Kingdom Stamp Duty
                and Stamp Duty Reserve Tax
(SDRT)
|-----------------------------------------------------------------------------

The transfer of ordinary
      shares will generally be liable to stamp duty at the rate of 0.5% of the
      amount or value of the consideration given (rounded up to the nearest £5).
      An unconditional agreement to transfer ordinary shares will generally be
      subject to SDRT at 0.5% of the agreed consideration. However, if within
      the period of six years of the date of such agreement becoming unconditional
      an instrument of transfer is
executed pursuant to the agreement and duly stamped, any liability to SDRT will
      usually be repaid, if already paid, or cancelled. The liability to pay
stamp duty or SDRT is generally satisfied by the purchaser or transferee.


No stamp duty or SDRT
      will generally arise on a transfer of ordinary shares into CREST, unless
      such transfer is made for a consideration in money or moneys worth,
      in which case a liability to SDRT will arise, usually at the rate of 0.5%
of the value of the consideration.


A transfer of ordinary shares effected on a paperless basis within CREST will generally be subject to SDRT at the rate of 0.5% of the value of the consideration.


Stamp duty, or SDRT,
      is generally payable upon the transfer or issue of ordinary shares to,
      or to a nominee or, in some cases, agent of, a person whose business is
      or includes issuing depositary receipts or the provision of clearance services.
      For these purposes, the current rate of stamp duty and SDRT is usually
      1.5% (rounded up, in the case of stamp duty, to the nearest £5). The
      rate is applied, in each case, to the amount or value of the consideration
      or, in some circumstances, to the value or the issue price of the ordinary
shares.


STATEMENT
OF EXPERTS

Not applicable.


DOCUMENTS
ON DISPLAY

It is possible to read
      and copy documents referred to in this annual report on Form 20-F that
      have been filed with the SEC at the SECs public reference room located at 450 Fifth Street,
NW, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The Companys SEC filings are also publicly available through the SECs
website located at
http://www.sec.gov.


SUBSIDIARY
      INFORMATION

Not applicable.


69

---



Back to Contents

|ITEM 11.QUANTITATIVE
    AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|----------------------------------------------------------------------

Qualitative information
      on treasury management and exchange rate and interest rate risk is disclosed
      in Item 5. Operating and Financial Review and Prospects  Liquidity and Capital
Resources.


|Quantitative Information about Market
    Risk
|----------------------------------------------

The Groups treasury
      policy is to manage financial risks that arise in relation to underlying
      business needs. Current policy in respect of interest rate risk is to fix
      the cost on all Group debt. All treasury activities are governed by Board
      Treasury Policy Guidelines and the treasury department is subject to regular
      review by the internal audit department. Authorized treasury instruments
      for the management of risk are interest
rate swaps, interest rate options, forward rate agreements and currency swaps.


|Interest Rate Sensitivity
|-------------------------

At October 1, 2005 the Group had the following outstanding derivative or financial instruments that are sensitive to changes in interest rates.


The Group entered into hedging transactions in connection with the Securitization transaction completed on November 13, 2003, which comprised the following tranches of Notes:


|Tranche |  |   | Amount ofIssue |  |   | AmountOutstandingat October 12005 |  |   | Amount ofRate |  | ExpectedFutureWeightedAverageLife | 
|------- |  | - | -------------- |  | - | --------------------------------- |  | - | ------------- |  | --------------------------------- | 
|        |  |   |                |  |   |                                   |  |   |               |  |                                   | 
|A1      |  | £ | 200m           |  | £ | 200m                              |  | £ | LIBOR + 0.45% |  | 5 years                           | 
|A2      |  | £ | 550m           |  | £ | 506.8m                            |  |   | 5.574%        |  | 11 years                          | 
|A3      |  | $ | 418.75m        |  | $ | 418.75m                           |  | $ | LIBOR +0.45%  |  | 5 years                           | 
|B1      |  | £ | 350m           |  | £ | 330.0m                            |  |   | 5.965%        |  | 9 years                           | 
|B2      |  | £ | 350m           |  | £ | 350m                              |  |   | 6.013%        |  | 19 years                          | 
|C       |  | £ | 200m           |  | £ | 200m                              |  |   | 6.469%        |  | 24 years                          | 

All note tranches, other
      than A1 and A3, were issued at fixed rates, and the expected future weighted
      average lives are based on the amortization profiles of the individual
      note tranches and assumed refinancing of the A1 and A3 notes on the margin
      step-up date seven years after issuance, at which time the floating rate
      margins of 0.45% increase to 0.90% . For further details see Item 10. Material Contracts  Securitization
Issuer/Borrower Facility Agreement.


The Fair values of each note tranche as at February 10, 2006 are noted below. The mid-price in the market for each tranche is used for the calculation and the figure effectively represents the
net present value of the expected cash flows discounted at current market rates of interest.


|Tranche |  |   | Amount  |  |   | Fair Value | 
|------- |  | - | ------- |  | - | ---------- | 
|        |  |   |         |  |   |            | 
|A1      |  | £ | 200m    |  | £ | 200m       | 
|A2      |  | £ | 500.7m  |  | £ | 542.3m     | 
|A3      |  | $ | 418.75m |  | $ | 418.75m    | 
|B1      |  | £ | 327.0m  |  | £ | 352.7m     | 
|B2      |  | £ | 350m    |  | £ | 405.8m     | 
|C       |  | £ | 200m    |  | £ | 235.9m     | 

70

---



Back to Contents

The floating rate notes (tranches A1 and A3) are
    fully hedged using interest rate swaps and currency swaps, whereby all principal
    and interest liabilities are swapped into sterling, providing an initial sterling
    equivalent of £250 million in respect of the A3 notes and fixed interest
    payable. Further details are provided below.


|**Interest
        Rate Swaps**                      |  |                  |  
|---------------------------------------------------- |  | ---------------- | -
|                                                     |  |                  |  
|a)     In
        respect of A1 notes:               |  |                  |  
|                                                     |  |                  |  
|Notional
      Amount                                |  | £
      200m     |  
|Floating
      Rate Receivable                       |  | £ LIBOR          |  
|Fixed
      Rate Payable                             |  | 5.1805%          |  
|Fair Value                                           |  | (£18.5m          | )
|                                                     |  |                  |  
|b)     In
        respect of A3 notes:               |  |                  |  
|                                                     |  |                  |  
|Notional Amount                                      |  | £250m            |  
|Floating Rate Receivable                             |  | £ LIBOR          |  
|Fixed
      Rate Payable                             |  | 5.1805%          |  
|Fair
      Value                                     |  | (£23.1m          | )
|                                                     |  |                  |  
|**Currency Swap (in respect
      of A3 notes)**     |  |                  |  
|                                                     |  |                  |  
|a)     Initial
        and Final Principal Exchange: |  |                  |  
|                                                     |  |                  |  
|US
      Dollar Amount                               |  | $418.75m         |  
|Exchange Rate                                        |  | 1.6750           |  
|Sterling
      Amount                                |  | £250m            |  
|                                                     |  |                  |  
|b)     Interest
        Flows:                       |  |                  |  
|                                                     |  |                  |  
|Floating
      Rate Receivable                       |  | $ LIBOR + 0.45%  |  
|Floating Rate Payable                                |  | £ LIBOR + 0.499% |  
|                                                     |  |                  |  
|c)     Fair
        Value                            |  | (£13.2m          | )

The Fair values in respect of the above swap arrangements
    represent the net present value of the expected cash flows discounted at current
    market rates of interest and utilize a US dollar/sterling exchange rate of
    1.7436 as at February 10, 2006.


No impact will arise from movements in interest
    rates as all flows have been swapped into a fixed rate sterling basis, utilizing
    the transactions described above.


The overall cash interest payable on the loan notes
    is 6% after taking account of interest rate hedging and the cost of the provision
    of the financial guarantee by Ambac as summarized in Item 10. Material
    Contracts  Securitization Issuer/Borrower Facility Agreement.


|Exchange Rate Sensitivity
|-------------------------

Although the Group has limited operations in Germany,
    virtually all of the Groups turnover, costs, assets and liabilities
    are sterling based. Consequently, no foreign exchange hedging transactions
    have been entered into, other than the currency swaps as part of the Securitization.


|ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
|--------------------------------------------------------------

Not applicable.


71

---



Back to Contents

PART II

|ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|-------------------------------------------------------

None.


|ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF
      SECURITY HOLDERS AND USE OF PROCEEDS
|------------------------------------------------------------------------------------------

None.


|ITEM 15.CONTROLS
    AND PROCEDURES
|-----------------------------------

As at the end of the period covered by this report,
    the Chief Executive and the Finance Director carried out an evaluation of
    the effectiveness of the design and operation of the Companys disclosure
    controls and procedures. These are defined as those controls and procedures
    designed to ensure that information required to be disclosed in reports filed
    under the Exchange Act is recorded, processed, summarized and reported within
    specified time periods. As of the date of the evaluation, the Chief Executive
    and the Finance Director concluded that the design and operation of these
    disclosure controls and procedures were effective.


|ITEM 16A.AUDIT
    COMMITTEE FINANCIAL EXPERT
|---------------------------------------------

The Board of Directors considers George Fairweather
    to be the Audit Committee Financial Expert. Mr. Fairweather, who chairs the
    Audit Committee, is a Non-Executive Director and is considered by the Board
    to be independent of management.


|ITEM 16B.CODE
            OF ETHICS
|-----------------------------------

The Company recognizes that its businesses have
    responsibilities within the communities in which they operate. The Company
    has a Code of Ethics for Senior Executives and Financial Officers (Ethics
    Code) and Business Conduct guidelines describing the standards of behavior
    expected from all company employees, including directors and senior management.


The Company has published its Ethics Code and its
    Business Conduct guidelines within the investor section of its website, www.mbplc.com.
    The Senior Executive and Financial Officers covered by the Ethics Code are
    the Chief Executive, Finance Director, Deputy Finance Director and all other
    members of the Companys Executive Committee (or any persons performing
    similar roles).


72

---



Back to Contents

|ITEM 16C.     PRINCIPAL
    ACCOUNTANT FEES AND SERVICES
|--------------------------------------------------------

At the Annual General Meeting held on February
    2, 2006, the shareholders reappointed Ernst & Young LLP as auditors of
    the Company. The following fees were billed to the Group by Ernst & Young
    LLP for professional services in each of the last two fiscal years:


|                                          |  | Fiscal year |    
|----------------------------------------- |  | ----------- | ---
|                                          |  | 2005        |    
|                                          |  | (£ million) |    
|                                          |  |             |    
|Audit fees                                |  |             |    
|Audit-related fees                        |  |             |    
|Securitization                            |  |             |   
|Section
    404 of the Sarbanes-Oxley Act |  |             | 0.1
|                                          |  |             |    
|Total
    Audit-Related                   |  |             |    
|Tax fees                                  |  |             |    
|                                          |  |             |    
|Total fees                                |  |             |    
|                                          |  |             |    

Audit fees consists of fees billed for professional
    services rendered by Ernst & Young LLP for the audit of the Groups
    consolidated financial statements and the review of the Groups interim
    consolidated financial statements.


Audit-related fees consists of fees billed for
    assurance and related services that are reasonably related to the performance
    of the audit or review of the Groups financial statements and are not
    reported under Audit fees. In fiscal 2005, these services arose from Ernst
    & Youngs reviews of our preparations towards reporting in respect
    of our internal financial controls and procedures under Section 404 of the
    Sarbanes-Oxley Act. In fiscal 2004 these services arose from accounting reviews
    in connection with the Groups Securitization on November 13, 2003.


Tax fees (less than £100,000 in each of fiscal
    years 2004 and 2005) consists of fees billed for professional services in
    respect of tax compliance for the Groups German operations.


|Audit Committees Policy on Pre-Approval
    of Audit and Permissible Non-Audit Services of the Independent Auditor
|-------------------------------------------------------------------------------------------------------------------

The Audit Committee has adopted policies to ensure
    that the independence of the External Auditor is not impaired. The Audit Committee
    is directly responsible for the appointment, compensation, resignation, dismissal
    and the overseeing of the External Auditor and approves the scope of the external
    audit. The Audit Committees policy on the use of the External Auditor
    for non-audit services is as follows:


The External Auditor may only provide services to
  the Group where the Auditor:


| | • | does not function in the role of management;           
| | - | -------------------------------------------------------
| |   |                                                        
| | • | does not audit his or her own work; and                
| |   |                                                        
| | • | does not serve in an advocacy role for the
      Group.

Non-audit services may be provided by the External
    Auditor, pre-approved by the Audit Committee, subject to the following conditions:


| | • | the service must be included on a list of services
      pre-considered by the Audit Committee in light of applicable
      laws and UK best practice and including certain Audit Related Services,
      Tax Services and Other Services;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                           
| | • | the total fee for each individual non-audit
      service shall not exceed half the forecast audit fee for the year;                                                                                                                      
| |   |                                                                                                                                                                                                                                           
| | • | the aggregate fees paid in a fiscal year for
      pre-approved non-audit services shall not exceed the audit
      fee; and                                                                                                              
| |   |                                                                                                                                                                                                                                           
| | • | any proposed work must be checked against this
      policy and a report of all non-audit services carried
      out under the pre-approval procedures shall be submitted to each scheduled
      Audit Committee meeting.                

Any other non-audit services may only be carried
    out by the External Auditor if permitted by UK and US law and if specifically
    approved by either the Audit Committee or the Chairman of the Audit Committee.


No portion of the services described above were
    approved by the Audit Committee pursuant to thede
    minimisexception to the pre-approval requirement
    provided by paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.


73

---



Back to Contents

ITEM 16D.      EXEMPTION FROM THE LISTING STANDARDS
      FOR AUDIT
COMMITTEE

Not applicable.


ITEM 16E.      PURCHASES OF EQUITY SECURITIES
BY THE ISSUER AND AFFILIATED PURCHASERS

At the AGM on January
      26, 2005 the Companys shareholders gave authority for the Company
      to buy its own shares subject to certain conditions. Pursuant to the authority
      conferred by Article
11 of the Companys Articles of Association, the shareholders approved a
resolution which permitted the Company to buy back up to 5% of paid-up capital
during the period from January 26, 2005 to the earlier of April 26, 2006 or the
date of the next AGM, at a price per share ranging from a minimum of 7 1/12 p
per
share
to a maximum of 105% of the average of the middle market quotations for ordinary
shares as derived from the London Stock Exchange Daily Official List for the
five business
days before the relevant ordinary shares are contracted to be purchased. The
maximum number of shares authorised to be purchased under the buy-back program
was 52,389,740.


Pursuant to the buy-back program, in the course of fiscal year 2005, the Company
purchased shares as follows:


|Period               | Total number of
    shares |  | Average price paid
    per share (£) |  | Total number of
    shares purchased as
    part of publicly
    announced program |  | Total number of
        shares that may yet be
purchased under the
program | 
|-------------------- | -------------------------- |  | ------------------------------------ |  | ---------------------------------------------------------------------------------- |  | -------------------------------------------------------------------------- | 
|                     |                           
|December 6, 2004 to  |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|December 16, 2004    | 2,350,000                  |  | 3.16                                 |  | 2,350,000                                                                          |  | 50,039,740                                                                 | 
|June 6, 2005 to      |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|June 31, 2005        | 3,720,000                  |  | 3.29                                 |  | 6,070,000                                                                          |  | 46,319,740                                                                 | 
|February 1, 2005 to  |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|February 28, 2005    | 4,025,000                  |  | 3.39                                 |  | 10,095,000                                                                         |  | 42,294,740                                                                 | 
|March 1, 2005 to     |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|March 30, 2005       | 4,020,000                  |  | 3.36                                 |  | 14,115,000                                                                         |  | 38,274,740                                                                 | 
|April 1, 2005 to     |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|April 4, 2005        | 355,000                    |  | 3.44                                 |  | 14,470,000                                                                         |  | 37,919,740                                                                 | 
|May 24, 2005 to      |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|May 31, 2005         | 1,100,000                  |  | 3.25                                 |  | 15,570,000                                                                         |  | 36,619,740                                                                 | 
|June 1, 2005 to      |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|June 30, 2005        | 4,190,000                  |  | 3.26                                 |  | 19,760,000                                                                         |  | 32,629,740                                                                 | 
|July 1, 2005 to      |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|July 29, 2005        | 3,600,000                  |  | 3.41                                 |  | 23,360,000                                                                         |  | 29,029,740                                                                 | 
|August 1, 2005 to    |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|August 31, 2005      | 4,535,000                  |  | 3.59                                 |  | 27,895,000                                                                         |  | 24,494,740                                                                 | 
|September 1, 2005 to |                            |  |                                      |  |                                                                                    |  |                                                                            | 
|September 2, 2005    | 631,000                    |  | 3.73                                 |  | 28,526,000                                                                         |  | 23,863,740                                                                 | 

All purchases were made in market transactions effected
    on the London Stock Exchange. During the year, the Company requested that
    the independent Employee Benefit Trust purchase 1,000,000 shares funded through
    the share buy-back program, to satisfy share awards to the Company's employees.
    The Employee Benefit Trust purchased 1,000,000 shares at a price of £3.16
    each in December 2004. No purchases were made by the Company other than in
    accordance
    with the buy-back program.


74

---



Back to Contents

PART III

ITEM 17.FINANCIAL STATEMENTS

See Item 18. Financial Statements.


ITEM 18.FINANCIAL
    STATEMENTS

The following consolidated
      financial statements and related schedules, together with the report thereon
of Ernst & Young LLP, are filed as part of this annual report:


|                                                                                                                                                           | Page 
|---------------------------------------------------------------------------------------------------------------------------------------------------------- | -----
|                                                                                                                                                           |      
|Report and Consent of Independent Registered Public Accounting Firm                                                                                        | F-1  
|Financial Statements                                                                                                                                       |      
|Consolidated Profit and Loss Account for fiscal years 2005, 2004 and 2003                                                                                  | F-2  
|Consolidated Balance Sheet at fiscal year ends 2005 and 2004                                                                                               | F-4  
|Consolidated
              Statement of Changes in Shareholders Funds/Invested Capital for
    the fiscal years 2005, 2004and 2003                        | F-5  
|Consolidated Statement of Cash Flows for the fiscal years 2005, 2004 and 2003                                                                              | F-7  
|Notes to the Financial Statements                                                                                                                          | F-8  
|Schedules                                                                                                                                                  |      
|Schedule
              I  Condensed Financial information of Registrant at fiscal year
    ends 2005 and 2004 and for fiscalyears
    2005, 2004 and 2003 | SH1-1
|Schedule
              II  Valuation and Qualifying Accounts for the fiscal years 2005,
    2004 and 2003                                                 | SH2-1

75

---



Back to Contents

ITEM 19.EXHIBITS

The following exhibits are to be filed as part of this annual report:


|Exhibit 1         | Memorandum
    and Articles of Association of Mitchells & Butlers plc                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit 2(b)(i)   | Secured Facility Agreement, dated November 13, 2003, between Mitchells & Butlers
    Finance plcand subsidiaries of Mitchell & Butlers plc (the Secured Facility
    Agreement) (incorporated byreference to exhibit 2(b)(i) of Mitchells & Butlers plcs Annual
    Report on Form 20-F (file no.001-31653) dated as of March 16, 2004)                                                                                                                                     
|Exhibit 4(a)(i)   | Separation Agreement, dated April 15, 2003, between InterContinental Hotels
    Group PLC and theSix Continents Group (the Separation Agreement) (incorporated
    by reference to Exhibit 4(a)(i)of Mitchells & Butlers plcs Registration Statement on Form 20-F
    (File No. 001-31653), datedMarch 28, 2003)                                                                                                                                                            
|Exhibit 4(a)(ii)  | M and B Group Transfer Share Purchase Agreement, dated April 15, 2003, between
    Mitchells &Butlers plc and Six Continents PLC (incorporated by reference to Exhibit
    4(a)(ii) of Mitchells &Butlers plcs Registration Statement on Form 20-F (File No. 001-31653),
    dated March 28, 2003)(the M and B Group Transfer SPA)                                                                                                                                          
|Exhibit 4(a)(iii) | Working Capital Facility, dated November 13, 2003, between Mitchells & Butlers
    Retail Limited,the Royal Bank of Scotland plc and HSBC Trustee (C.I.) Limited (the Working
    Capital Facility)(incorporated by reference to exhibit 4(a)(iii) of Mitchells & Butlers
    plcs Annual Report on Form20-F (file no. 001-31653) dated as of March 16, 2004)                                                                                                               
|Exhibit 4(a)(iv)  | Bede Acquisition Agreement: Sale and Purchase Agreement in respect of Bede
    Leisure RetailLimited, West Midlands Taverns (Holdings) Limited and Quayside Caterers Limited,
    datedFebruary 14, 2001, among Bass Taverns Limited, Bede Retail Investments Limited
    and BedeAcquisition Company Limited (incorporated by reference to Exhibit 4(a)(v)
    of Mitchells &Butlers plcs Registration Statement on Form 20-F (File No. 001-31653),
    dated March 28, 2003)
|Exhibit 4(a)(v)   | Securitization Issuer/Borrower Agreement dated November 13, 2003 between
    Mitchells & ButlersRetail Ltd and
    other subsidiaries and Mitchells & Butlers Finance plc (incorporated
    by reference to Exhibit 4(a)(v) of Mitchells & Butlers Annual Report on Form
    20-F (File no. 001-31653) dated as of February 24, 2005)                                                                                                                                          
|Exhibit 4(c)(i)   | Tim Clarkes service contract, dated February 12, 2003 (incorporated
    by reference to Exhibit4(c)(i) of Mitchells & Butlers plcs Registration Statement on Form
    20-F (File No. 001-31653),dated March 28, 2003)                                                                                                                                                                                                                                                        
|Exhibit 4(c)(ii)  | Karim Naffahs service contract, dated February 12, 2003 (incorporated
    by reference to Exhibit4(c)(ii) of Mitchells & Butlers plcs Registration
    Statement on Form 20-F (File No. 001-31653),dated
    March 28, 2003)                                                                                                                                                                                                                                                 
|                 
|Exhibit 4(c)(iii) | Mike Bramleys service contract, dated February 12, 2003 (incorporated
    by reference to Exhibit4(c)(iii) of Mitchells & Butlers plcs Registration
    Statement on Form 20-F (File No. 001-31653),dated
    March 28, 2003)                                                                                                                                                                                                                                                
|                 
|Exhibit 4(c)(iv)  | Tony Hughes service contract, dated February 12, 2003 (incorporated
    by reference to Exhibit4(c)(iv) of Mitchells & Butlers plcs Registration
    Statement on Form 20-F (File No. 001-31653),dated
    March 28, 2003)                                                                                                                                                                                                                                                   
|                 
|Exhibit 8         | Subsidiaries                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Exhibit 12.1      | Certification of Tim Clarke filed pursuant to Rule 13a  14(a)
    under the Securities Exchange Actof 1934                                                                                                                                                                                                                                                                                                                                                                    
|Exhibit 12.2      | Certification of Karim Naffah filed pursuant to Rule 13a  14(a)
    under the Securities ExchangeAct of 1934                                                                                                                                                                                                                                                                                                                                                                  
|Exhibit 13.1      | Certification of Tim Clarke and Karim Naffah furnished
    pursuant to Rule 13a  14(b) under theSecurities
    Exchange Act of 1934 and 18 U.S.C. Section 1350                                                                                                                                                                                                                                                                                                                
|Exhibit 14(a)     | Consent of Ernst & Young LLP (included on page F-1)                                                                                                                                                                                                                                                                                                                                                                                                                            

76

---



Back to Contents



MITCHELLS & BUTLERS PLC


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheets of Mitchells & Butlers plc as of October 1, 2005 and September 25, 2004, and the related consolidated profit and loss accounts and consolidated statements of changes in shareholders funds/invested capital and cash flows for each of the three years in the
period ended October 1, 2005. Our audits also included the financial statement schedules listed in the Index at Item 18. These financial statements and schedules are the responsibility of the Companys management. Our responsibility is to
express an opinion on these financial statements and schedules based on our audits.


We conducted our audits in accordance with United Kingdom auditing standards and the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Companys internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.


In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Mitchells & Butlers plc at October 1, 2005 and September 25,
2004, and the consolidated results of its operations and its consolidated cash flows for each of the three years in the period ended October 1, 2005 in conformity with accounting principles generally accepted in the United Kingdom which differ in
certain respects from those generally accepted in the United States (see Note 31 of Notes to the Financial Statements).  Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements
taken as a whole, present fairly in all material respects the information set forth therein.




E RNST & Y OUNG LLP


CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333 -104742) pertaining to the Six Continents Executive Share Option Scheme 1995, of the reference to our firm in Item 3  Key
Information and of our report dated November 29, 2005, on the consolidated financial statements and schedules of Mitchells & Butlers plc, both included in the Form 20-F of Mitchells & Butlers plc for the period ended October 1, 2005.




E RNST & Y OUNG LLP


F-1

---



Back to Contents

MITCHELLS & BUTLERS PLC

CONSOLIDATED PROFIT AND LOSS ACCOUNT

|                                                                              | 53 weeks ended  |             | 52 weeks ended               |            
|----------------------------------------------------------------------------- | --------------- | ----------- | ---------------------------- | -----------
|                                                                              |                 |             |                              |            
|                                                                              | October 1, 2005 |             | September 25, 2004 restated* |            
|                                                                              |                 |             |                              |            
|                                                                              | Before          |             | Exceptional                  |            
|exceptional                                                                   | items           | exceptional | items                        | exceptional
|items                                                                         | (Note 8)        | Total       | items                        | (Note 8)   
|                                                                              |                 |             |                              |            
|                                                                              |                 |             |                              |            
|Turnover(Note
    4)                                                         | 1,662           |             |                             |            
|Costs
    and overheads  (Note 5)                                            | (1,365          | )           | (4                           | )          
|                                                                              |                 |             |                              |            
|Operating profit (Note
4)                                                    | 297             |             | (4                           | )          
|Profit
    on disposal of fixed assets  (Note 8)                             |                |             | 1                            |            
|Separation
    costs  (Note 8)                                               |                |             |                             |            
|                                                                              |                 |             |                              |            
|Profit
    on ordinary activities beforeinterest                              | 297             |             | (3                           | )          
|Interest on net debt                                                          | (105            | )           |                             |            
|Net finance income/(expense)
                in respectof                     |                 |             |                              |            
|pensions(Note
    7)                                                         | 3               |             |                             |            
|                                                                              |                 |             |                              |            
|Profit
                  on ordinary activities beforetaxation                | 195             |             | (3                           | )          
|Tax
    on profit on ordinary activities  (Note 10)                          | (62             | )           | 3                            |            
|                                                                              |                 |             |                              |            
|Earnings
    available forshareholders(i)                                     | 133             |             |                             |            
|Dividends
                on equityshares(Note
    11)                       | (53             | )           |                             |            
|                                                                              |                 |             |                              |            
|Retained
                profit/(loss) for the financial
                year | 80              |             |                             |            
|                                                                              |                 |             |                              |            
|Earnings per ordinary share(Note
12):                                        |                 |             |                              |            
|Basic                                                                         |                |             |                             |            
|Diluted                                                                       |                |             |                             |            
|Adjusted                                                                      | 26.0            | p           |                             |            
|                                                                              |                 |             |                              |            

| | 
| | 

|*                                                   | Restated on the full
          adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).                                                                                                                                                                                                        
|--------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                   
|All activities relate to continuing
    operations.
|                                                    |                                                                                                                                                                                                                                                                                                                                       
|(i)                                                 | A summary of the significant adjustments to
          earnings available for shareholders that would be required had United
          States generally accepted accounting principles been applied instead
          of those generally accepted in the United Kingdom is set out in Note
    31 of Notes to the Financial Statements.

The Notes to the Financial Statements are an integral part of these Financial Statements.

F-2

---



Back to Contents

MITCHELLS & BUTLERS PLC

CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES

|                                                                 |  | 53 weeks ended |      | 52 weeks ended                  | 
|---------------------------------------------------------------- |  | -------------- | ---- | ------------------------------- | 
|                                                                 |  |                |      |                                 | 
|                                                                 |  | October 1,2005 |      | September 25,2004
    restated* | 
|                                                                 |  |                |      |                                 | 
|                                                                 |  |                |      |                                 | 
|Earnings available for shareholders                              |  |                | 133  |                                 | 
|Actuarial (loss)/gain on pension schemes                         |  |                | (7   | )                               | 
|Deferred tax relating to actuarial (loss)/gain                   |  |                | 2    |                                 | 
|Exchange differences arising
on foreign currency net investments |  |                |     |                                 | 
|                                                                 |  |                |      |                                 | 
|Total recognized gains for the year                              |  |                | 128  |                                 | 
|                                                                 |  |                |      |                                 | 
|Prior year adjustment on the full adoption of FRS 17             |  |                | (219 | )                               | 
|                                                                 |  |                |      |                                 | 
|Total recognized losses since previous year end                  |  |                | (91  | )                               | 
|                                                                 |  |                |      |                                 | 

| | 
| | 

|*   | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).                                                               
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                    
|(i) | The statement of comprehensive income required
        under United States generally accepted accounting principles is set out
    in Note 31 of Notes to the Financial Statements.
|    |                                                                                                                                                                                    

|Note of historical cost Group profits
    and losses          |  |             |                |  |  |                                  |   |  |                                    | 
|------------------------------------------------------------- |  | ----------- | -------------- |  |  | -------------------------------- | - |  | ---------------------------------- | 
|                                                              |  |             | 53 weeks ended |  |  | 52 weeks ended                   |  
|                                                              |  |             |                |  | 
|                                                              |  |             |                |  |  |                                  |   |  |                                    | 
|                                                              |  |             | October 1,2005 |  |  | September 25, 2004
    restated* |   |  | September 27, 2003
      restated* | 
|                                                              |  |             |                |  |  |                                  |   |  |                                    | 
|                                                              |  | (£ million) |               
|Reported profit on ordinary activities before taxation        |  |             | 192            |  |  | 171                              |   |  | 154                                | 
|Realization of revaluation gains of previous periods          |  |             | 4              |  |  | 2                                |   |  | 1                                  | 
|                                                              |  |             |                |  |  |                                  |   |  |                                    | 
|Historical cost profit on ordinary activities before taxation |  |             | 196            |  |  | 173                              |   |  | 155                                | 
|                                                              |  |             |                |  |  |                                  |   |  |                                    | 
|Historical cost profit/(loss) retained for the financial year |  |             | 84             |  |  | (430                             | ) |  | 89                                 | 
|                                                              |  |             |                |  |  |                                  |   |  |                                    | 

|  |                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                     
|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).



The Notes to the Financial Statements are an integral part of these Financial Statements.

F-3

---



Back to Contents

MITCHELLS & BUTLERS
        PLC

CONSOLIDATED BALANCE SHEET

|                                                          | October 1,
2005 |   | September 25,
2004 restated* |  
|--------------------------------------------------------- | --------------- | - | ---------------------------- | -
|                                                          |                 |   |                              |  
|                                                          | (£ million)     |  
|Fixed assets                                              |                 |   |                              |  
|Intangible assets  (Note 13)                             | 10              |   | 10                           |  
|Tangible assets  (Note 14)                               | 3,516           |   | 3,509                        |  
|                                                          |                 |   |                              |  
|                                                          | 3,526           |   | 3,519                        |  
|Current assets                                            |                 |   |                              |  
|Stocks  (Note 15)                                        | 39              |   | 43                           |  
|Debtors  (Note 16)                                       | 76              |   | 82                           |  
|Investments                                               | 71              |   | 144                          |  
|Cash at bank and in hand                                  | 129             |   | 81                           |  
|                                                          |                 |   |                              |  
|                                                          | 315             |   | 350                          |  
|Creditors: amounts falling due within one year (Note 17) | (350            | ) | (326                         | )
|                                                          |                 |   |                              |  
|Net current (liabilities)/assets                          | (35             | ) | 24                           |  
|                                                          |                 |   |                              |  
|Total assets less current liabilities                     | 3,491           |   | 3,543                        |  
|                                                          |                 |   |                              |  
|Creditors: amounts falling due after one year (Note 18)  | (1,786          | ) | (1,822                       | )
|Provisions for liabilities and charges                    |                 |   |                              |  
|Deferred tax  (Note 21)                                  | (185            | ) | (182                         | )
|Other provisions  (Note 22)                              | (4              | ) | (2                           | )
|                                                          |                 |   |                              |  
|Net assets before net pension liabilities                 | 1,516           |   | 1,537                        |  
|                                                          |                 |   |                              |  
|Net pension liabilities  (Note 7)                        | (99             | ) | (114                         | )
|                                                          |                 |   |                              |  
|Net assets                                                | 1,417           |   | 1,423                        |  
|                                                          |                 |   |                              |  
|Capital and reserves                                      |                 |   |                              |  
|Called up share capital                                   | 35              |   | 37                           |  
|Share premium account                                     | 14              |   | 12                           |  
|Capital redemption reserve                                | 2               |   | —                            |  
|Revaluation reserve                                       | 335             |   | 339                          |  
|Profit and loss account reserve                           | 1,031           |   | 1,035                        |  
|                                                          |                 |   |                              |  
|Equity shareholders funds(i)                             | 1,417           |   | 1,423                        |  
|                                                          |                 |   |                              |  
|                                                          |                 |   |                              |  

|*   | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).                                                                                                                                                                                                                            
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                 
|(i) | A summary of the significant
              adjustments to shareholders funds that would be required
              had United States generally accepted accounting principles been
              applied
              instead of those generally accepted in the United Kingdom is set
    out in Note 31 of Notes to the Financial Statements.
|   

The Notes to the Financial Statements are an integral part of these Financial Statements

F-4

---



Back to Contents

MITCHELLS & BUTLERS PLC

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS FUNDS/INVESTED CAPITAL

|                                                                              | Share Capital                                   |   | Retained earnings and other
          reserves |   |                                        |  |                                                         | 
|----------------------------------------------------------------------------- | ----------------------------------------------- | - | ---------------------------------------------- | - | -------------------------------------- |  | ------------------------------------------------------- | 
|                                                                              |                                                 |   |                                                |   |                                        |  |                                                         | 
|                                                                              | Number of
      ordinary
      shares
      (i) |   | Ordinary
            shares
      (i)          |   | Share
      premium
      account (ii) |  | Capital
      redemption
      reserve
      (ii) (iii) | 
|                                                                              |                                                 |   |                                                |   |                                        |  |                                                         | 
|                                                                              | (millions)                                      |   | (£ million)                                    |  
|At September
            28, 2002(vi):                                        |                                                 |   |                                                |   |                                        |  |                                                         | 
|As previously reported                                                        | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Adoption
          of FRS 17                                                  | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|                                                                              |                                                 |   |                                                |   |                                        |  |                                                         | 
|As restated*                                                                  | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Pre separation actuarial
        loss on pension schemes                      | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Pre separation deferred tax
        relating to actuarial loss                | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Pre separation retained income*                                               | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Pre separation exchange differences                                           | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Funding with Six Continents
        Group                                     | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Arising from separation transaction*                                          | 734                                             |   | 37                                             |   | —                                      |  | —                                                       | 
|Allotment of ordinary shares                                                  | 2                                               |   | —                                              |   | 4                                      |  | —                                                       | 
|Post separation actuarial
        gain on pension schemes                     | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Post
            separation deferred tax relating to
          actuarial gain | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Post separation retained income*                                              | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Post separation exchange differences                                          | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|                                                                              |                                                 |   |                                                |   |                                        |  |                                                         | 
|At September
            27, 2003(vi)*                                        | 736                                             |   | 37                                             |   | 4                                      |  | —                                                       | 
|Share consolidation                                                           | (216                                            | ) | —                                              |   | —                                      |  | —                                                       | 
|Allotment of ordinary shares                                                  | 4                                               |   | —                                              |   | 8                                      |  | —                                                       | 
|Purchase of own shares by employee share trusts                               | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Release of own shares by employee shares trusts                               | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Credit in respect of employee
        share schemes                           | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Actuarial gain on pension schemes                                             | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Deferred tax relating to actuarial gain                                       | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Revaluation surplus realized on disposals                                     | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Retained loss*                                                                | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Exchange differences                                                          | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|                                                                              |                                                 |   |                                                |   |                                        |  |                                                         | 
|At September
            25, 2004(vi)*                                        | 524                                             |   | 37                                             |   | 12                                     |  | —                                                       | 
|Allotment of ordinary shares                                                  | 1                                               |   | —                                              |   | 2                                      |  | —                                                       | 
|Purchase of own shares                                                        | (25                                             | ) | (2                                             | ) | —                                      |  | 2                                                       | 
|Release of own shares held                                                    | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Credit in respect of employee
      share schemes                             | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Actuarial loss on pension schemes                                             | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Deferred tax relating to actuarial loss                                       | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Revaluation surplus realized on disposals                                     | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|Retained profit                                                               | —                                               |   | —                                              |   | —                                      |  | —                                                       | 
|                                                                              |                                                 |   |                                                |   |                                        |  |                                                         | 
|At October
            1, 2005(vi)                                            | 500                                             |   | 35                                             |   | 14                                     |  | 2                                                       | 
|                                                                              |                                                 |   |                                                |   |                                        |  |                                                         | 

| | 
| | 

|* | Restated on the full adoption of FRS 17 Retirement
        Benefits (see
Note 3 of Notes to the Financial Statements).
|- | ------------------------------------------------------------------------------------------------------------------------

Footnotes are set out on pages F-6 and F-7.


The Notes to the Financial Statements are an integral part of these Financial Statements.

F-5

---



Back to Contents

MITCHELLS & BUTLERS PLC

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS FUNDS/INVESTED
CAPITAL
(Continued)

|(i) | On incorporation, on October
          2, 2002, the Company had an authorized share capital of £50,000, divided into 50,000 ordinary shares of £1 each, of which two were issued for cash at £1
    per share.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    | On February 6, 2003:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   
|    | On April 9, 2003, the authorized
      share capital of the Company was increased to £10,000,088,384 by the creation of 3,838,402 further ordinary shares of 1p each and an additional 4,000 ordinary shares of 1p each were
  issued. On the same day a 1 for 420 share consolidation took place leaving an authorized share capital of 2,380,961,520 ordinary shares of £4.20 each, two redeemable deferred shares of 1p each and one redeemable preference share of
£50,000. As a result of this change the issued share capital of the Company became 10 ordinary shares of £4.20 each, two redeemable deferred shares of 1p each and one redeemable preference share of £50,000.               
|   
|    | On April 11, 2003, 866,665,032
      ordinary shares of £4.20 each were issued to the shareholders of Six Continents PLC. The consideration for the shares issued was £3,640
      million.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    | On April 13, 2003, the authorized
      ordinary share capital was sub-divided into ordinary shares of 0.1p each
      and a 1 for 4,956 share consolidation took place leaving an authorized
      ordinary share capital of 2,017,764,000 shares of £4.956 each, two redeemable deferred shares of 1p each and one redeemable preference share of £50,000. The net effect was a 50 for 59 share consolidation of the Companys ordinary share capital. The resulting issued ordinary
  share capital was 734,461,900 shares of £4.956 each, two redeemable deferred shares of 1p and one redeemable preference share of £50,000.                                                                  
|   
|    | On April 15, 2003, the Court
      approved a reduction in the nominal share capital from £4.956 per share to 5p per share. Of the total amount reduced of £3,603 million, an amount equivalent to the market value of Six
  Continents PLC of £3,078 million was returned to shareholders by the transfer of Six Continents PLC to the InterContinental Hotels Group PLC and the issue by that company of ordinary shares to the Companys shareholders and the remainder
  was credited to distributable reserves. The reduction in the nominal share capital from £4.956 per share to 5p per share resulted in a fall in the total authorized share capital from £10,000,088,384 to £100,938,200.
|   
|    | On May 17, 2003, the redeemable deferred shares and redeemable preference share were redeemed at par value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|    | During the year ended September
      27, 2003, after separation from Six Continents, the Company issued 1,761,879
      ordinary shares of 5p each under employee share schemes for an aggregate
      consideration of £4
  million.                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | On December 2,
        2003, the Companys
        ordinary share capital was consolidated on a 12 for 17 basis in connection
        with the payment of a special dividend (see Note 11 of Notes to the Financial
        Statements). The share consolidation resulted in the issue of 519,739,246
        new ordinary shares of 7 1/12p each in replacement for 736,297,265 existing
    ordinary shares of 5p each.                                                                                                                                                                                                                                                                           
|    | During the year
        ended September 25, 2004, the Company issued 73,486 ordinary shares of
        5p each and 4,053,298
        ordinary shares of 7 1/12p each under employee share schemes for an aggregate
    consideration of £8 million.                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | During the year
        ended October 1, 2005, the Company issued 881,496 ordinary shares of
        7 1/12p each under employee
    share schemes for an aggregate consideration of £2m.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|    | In the year ended
        October 1, 2005, the Company also repurchased 29,755,080 shares at a
        cost of £101 million.
        Of these shares 24,236,000 were canceled, 1,229,080 shares were purchased
        for the Employee Benefit Trusts (further details of the Employee Share
        Trusts are set out in Note 24 of Notes to the Financial Statements) and
    the remaining 4,290,000 were purchased as treasury shares.                                                                                                                                                                                                                                                        
|    | At October 1,
        2005 and September 25, 2004 the authorized share capital of the Company
        was £100,938,200,
        comprising 1,424,304,000 ordinary shares of 7 1/12p each, one redeemable
        preference share of £50,000 and two redeemable deferred shares of
    1p each.                                                                                                                                                                                                                                                                                                                                                                                                     
|   

The Notes to the Financial Statements are an integral part of these Financial Statements.

F-6

---



Back to Contents

MITCHELLS & BUTLERS PLC


CONSOLIDATED STATEMENT OF CHANGES
  IN SHAREHOLDERS FUNDS/INVESTED CAPITAL (Continued)

|(ii)   | The share premium account, capital
          redemption reserve and revaluation reserve are not distributable. The profit
          and loss account reserve is wholly distributable after the deduction for
    own shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|------ | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iii)  | The 24,236,000
            ordinary shares canceled during the year were repurchased at a cost
            of £83 million, including
          expenses. The cost has been charged against distributable profits and the
          nominal value of the share capital canceled of £2 million has
    been transferred to the capital redemption reserve.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|(iv)   | The deduction
            for own shares within the profit and loss account reserve which was
            created on adoption of UITF
          38 represents the shares in the Company held by the Groups employee
           share trusts and shares held in treasury (‘treasury shares’).
           During 2005, the trusts acquired 1,229,080 (2004 4,584,826)
          shares at a cost of £4 million (2004 £12 million).3,453,846
          (2004 509,388) shares were released on the exercise of share options
          for
          a consideration of £8 million (2004 £1 million) and for the
          satisfaction  of awards accrued under the Six Continents Deferred Incentive
          Plan, the
          Short Term Deferred Incentive Plan and the Share Incentive Plan. The
          2,139,879  shares held by the trusts at October 1, 2005 had a market
          value of £7.8
          million (2004 4,364,645 shares held had a market value of £11.3
          million). During 2005, 4,290,000 treasury shares were acquired at a
          cost of £14 million and, of these, 2,182,102 shares were subsequently
          released to employees on the exercise of share options for a total
          consideration of £6 million. The 2,107,898 shares held in treasury
          at October 1, 2005 had a market value of £7.7 million.
|(v)    | Included in
            the profit and loss account reserve is a pension reserve of £99 million (2004 £114
          million, 2003 £170 million) which equates to the net pension liabilities
    under FRS 17).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(vi)   | Retained earnings
            and other reserves at October 1, 2005 included cumulative exchange
            adjustments of £6 million
          (2004 £6 million; 2003 £7 million, invested capital 2002
          nil).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(vii)  | Goodwill eliminated
            against shareholders
        funds was £50 million at September 28, 2002, September 27, 2003,
    September 25, 2004 and October 1, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(viii) | At the Annual General Meeting on
          February 2, 2006 authority was given to the Company to purchase up to 49,840,680
    of its own shares until the Annual General Meeting in 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|      

The Notes to the Financial Statements are an integral part of these Financial Statements.

F-7

---



Back to Contents

MITCHELLS & BUTLERS
        PLC

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                                      |                       | 53 weeks ended           |   | 52 weeks ended     |  
|------------------------------------------------------------------------------------- | --------------------- | ------------------------ | - | ------------------ | -
|                                                                                      | October 1,
      2005 | September 25,
      2004 |   | September 27,
2003
|                                                                                      |                       |                          |  
|                                                                                      |                       |                          |   | (£ million)        |  
|Operating
        activities- (Note 25)                                               |                       | 400                      |   | 378                |  
|                                                                                      |                       |                          |   |                    |  
|Interest
        paid                                                                 |                       | (113                     | ) | (107               | )
|Issue
        costs in respect of the securitized debt                                |                       |                         |   | (22                | )
|Facility
        fees paid                                                            |                       |                         |   |                   |  
|Interest
        received                                                             |                       | 11                       |   | 9                  |  
|                                                                                      |                       |                          |   |                    |  
|Returns
        on investments and servicing of finance                               |                       | (102                     | ) | (120               | )
|                                                                                      |                       |                          |   |                    |  
|Taxation                                                                              |                       |                          |   |                    |  
|United
        Kingdom corporation tax paid                                           |                       | (43                      | ) | (34                | )
|                                                                                      |                       |                          |   |                    |  
|Purchase
        of tangible fixed assets                                             |                       | (167                     | ) | (150               | )
|Sale
        of tangible fixed assets                                                 |                       | 57                       |   | 51                 |  
|                                                                                      |                       |                          |   |                    |  
|Capital
        expenditure                                                           |                       | (110                     | ) | (99                | )
|                                                                                      |                       |                          |   |                    |  
|Equity
        dividends paid                                                         |                       |                          |   |                    |  
|Final
        dividend for 2002/03                                                    |                       |                         |   | (29                | )
|Normal
        interim dividend for 2003/04                                           |                       |                         |   | (15                | )
|Special
        interim dividend for 2003/04                                          |                       |                         |   | (501               | )
|Final
        dividend for 2003/04                                                    |                       | (34                      | ) |                   |  
|Normal
        interim dividend for 2004/05                                           |                       | (16                      | ) |                   |  
|                                                                                      |                       |                          |   |                    |  
|                                                                                      |                       | (50                      | ) | (545               | )
|                                                                                      |                       |                          |   |                    |  
|Net
        cash inflow/(outflow) before management of liquid resources and financing |                       | 95                       |   | (420               | )
|                                                                                      |                       |                          |   |                    |  
|Management
        of liquid resources                                                |                       |                          |   |                    |  
|Decrease/(increase)
        in short-term deposits and investments                    |                       | 73                       |   | (141               | )
|                                                                                      |                       |                          |   |                    |  
|Financing                                                                             |                       |                          |   |                    |  
|Issue
        of ordinary share capital                                               |                       | 2                        |   | 8                  |  
|Purchase
        of own shares                                                        |                       | (101                     | ) | (12                | )
|Proceeds
        on release of own shares held                                        |                       | 14                       |   | 1                  |  
|Proceeds
        from issue of securitized debt                                       |                       |                         |   | 1,900              |  
|Repayments
        of principal in respect of securitized debt                        |                       | (35                      | ) | (28                | )
|Borrowings
        drawn down under syndicated loan facility                          |                       |                         |   | 25                 |  
|Borrowings
        repaid in respect of syndicated loan facility                      |                       |                         |   | (1,243             | )
|Repayment
        of amounts due to Six Continents group                              |                       |                         |   |                   |  
|Net
        funding flows with Six Continents group                                   |                       |                         |   |                   |  
|Cash
        payment to former Six Continents PLC shareholders                        |                       |                         |   |                   |  
|                                                                                      |                       |                          |   |                    |  
|                                                                                      |                       | (120                     | ) | 651                |  
|                                                                                      |                       |                          |   |                    |  
|Increase/(decrease)
        in cash and overdrafts (Note
        27)                 |                       | 48                       |   | 90                 |  
|                                                                                      |                       |                          |   |                    |  

| | 
| | 

|(i) | The significant differences between the cash flow statement presented above and that required under United States generally accepted accounting principles are described in Note 31 of Notes to the Financial
Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

The Notes to the Financial Statements are an integral part of these Financial Statements

F-8

---



Back to Contents

MITCHELLS & BUTLERS
        PLC

NOTES TO THE FINANCIAL STATEMENTS

Note 1 – Accounting Policies

|Basis of Accounting
|-------------------

The financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain tangible fixed assets.  They comply with applicable accounting standards in the United Kingdom,
including FRS 17 Retirement Benefits which has been applied in full for the first time this year. Further details regarding the adoption of FRS 17 are provided in Note 3 of Notes to the Financial Statements.


|Basis of consolidation
|----------------------

The Groups financial statements include the results of Mitchells & Butlers plc and all of its subsidiaries for the 53 week period ended October 1, 2005. The prior periods are for the 52 week periods ended
September 25, 2004 and September 27, 2003. The respective balance sheets have been drawn up to October 1, 2005 and September 25, 2004.


|Merger accounting
|-----------------

Mitchells & Butlers plc was incorporated on October 2, 2002. On April 15, 2003, its ordinary shares were listed on the official list of the UK Listing Authority and admitted to trading on the London Stock Exchange
following the separation of the Groups leisure retailing activities from Six Continents PLC. In order to present the results of the Group on a meaningful basis, the financial statements for the 52 weeks ended September 27, 2003 were prepared
under merger accounting principles to include the results and cash flows of those companies that comprised the Mitchells & Butlers group following separation as if the Group had been in existence since October 1, 2001.


|Turnover
|--------

Turnover represents sales (excluding VAT and similar taxes, coupons and staff discounts) of goods and services, provided in the normal course of business.


Turnover primarily comprises food and beverage sales which are normally recognized and settled at the time of sale.


|Fixed assets and depreciation
|-----------------------------

i)      Goodwill


| |  | Any excess of purchase
              consideration for an acquired business over the fair value attributed
              to its separately identifiable
              assets and liabilities represents goodwill. Goodwill is capitalized
              as an intangible asset. Goodwill arising on acquisitions prior
          to September 30, 1998 was eliminated against invested capital. To the
          extent
          that
              goodwill denominated in foreign currencies continues to have value,
              it
              is translated into sterling at each balance sheet date and any
          movements are accounted for as set out under foreign currencies.
              On disposal of a business, any goodwill relating to the business
              and previously
              eliminated against invested capital, is taken into account in determining
      the profit or loss on disposal.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-9

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 1 Accounting Policies  (Continued)

ii)      Tangible
  assets


| |  | Properties are stated at cost, or valuation,
      less depreciation. All other fixed assets are stated at cost less depreciation.                                                                                                                                                                                                                                            
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                               
| |  | When implementing FRS
              15 Tangible Fixed
              Assets in the year to September 30, 2000, the Group did not
              adopt a policy of revaluing properties. The transitional rules
              of FRS 15
              were applied so that the carrying values of properties include
            an element resulting from previous valuations.

iii)      Revaluation


| |  | Surpluses or deficits arising from previous
              professional valuations of properties, realized on the disposal of an
              asset, are transferred from the revaluation reserve to the profit and
      loss account reserve.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

iv)      Impairment


| |  | Any impairment arising on an income-generating
              unit, other than an impairment which represents a consumption of economic
              benefits, is eliminated against any specific revaluation reserve relating
              to the impaired asset in that income-generating unit with any excess
              being charged to the profit and loss account. An income-generating unit
      is impaired if its carrying value exceeds its recoverable amount.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

v)      Depreciation
and amortization


| |  | Goodwill and other intangible assets are amortized
    over their estimated useful lives, generally 20 years.                                                                                                                                                                        
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                      
| |  | Freehold land is not
depreciated.                                                                                                                                                                                                                                                    
| |  |                                                                                                                                                                                                                                                                                      
| |  | Freehold and long leasehold properties are
              depreciated over 50 years from the date of acquisition to their estimated
              residual value. Leasehold properties are depreciated over the unexpired
              term
    of the lease when less than 50 years.
| |  |                                                                                                                                                                                                                                                                                      
| |  | The cost of plant, machinery, fixtures, fittings,
              and equipment (owned or leased) is spread by equal installments over
      the estimated useful lives of the relevant assets, namely:                                                                                

| | Equipment in retail outlets      | 3-20 years
| | -------------------------------- | ----------
| | Information technology equipment | 3-7 years 
| | Vehicles                         | 4-5 years 
| | Plant and machinery              | 4-20 years

|                  |  |                                                                           
|----------------- |  | --------------------------------------------------------------------------
|                  |  | All depreciation and amortization is charged
    on a straight line basis.
|                  |  |                                                                           
|Deferred taxation

Deferred tax assets and liabilities are recognized, subject to certain exceptions, in respect of all material timing differences between the recognition of gains and losses in the financial statements and for tax purposes.
Those timing differences recognized include accelerated capital allowances and short-term timing differences. Timing differences not recognized include those relating to the revaluation of fixed assets in the absence of a commitment to sell the
assets, the gain on sale of assets rolled into replacement assets and the distribution of profits from overseas companies in the absence of any commitment by the Company to make the distribution.


Deferred tax assets are recognized to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax is calculated on a non-discounted
      basis at the tax rates that are expected to apply in the periods in which
      timing differences reverse, based on tax rates and laws enacted or substantively
      enacted at the balance sheet date.


F-10

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 1   Accounting Policies  (Continued)

|Leases
|------

Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership have passed to the Group, are capitalized in the balance sheet and depreciated on a straight line basis over
their useful lives. The capital elements of future obligations under leases are included as liabilities in the balance sheet. The interest elements of the rental obligations are charged in the profit and loss account over the term of the
lease.


Operating lease rentals are charged to the profit and loss account on a straight-line basis over the term of the lease.


|Pensions
|--------

For the Groups defined benefit arrangements, the current service cost of providing pension benefits to employees, together with the cost of any benefits relating to past service, is charged to operating profit and
included in staff costs. The interest cost and the expected return on assets are shown as a net amount of finance cost or income adjacent to interest. Actuarial gains and losses are recognized immediately in the statement of total recognized group
gains and losses. The difference between the market value of the pension scheme assets and the present value of accrued pension liabilities is shown separately as an asset or liability on the balance sheet, net of related deferred tax.


For the Groups defined contribution arrangements, the charge against profit is equal to the amount of contributions payable.


|Stocks
|------

Stocks are stated at the lower of cost and net realizable value.


|Foreign currencies
|------------------

Transactions in foreign currencies are recorded at
the exchange rates ruling on the dates of the transactions, adjusted for the
effects of any hedging arrangements. Monetary assets and liabilities denominated
in
foreign currencies are translated into sterling at the relevant rates of exchange
ruling
at the balance sheet date or, where appropriate, the rates of exchange fixed
under the terms of the relevant transactions.


The results of overseas operations are translated into sterling at weighted average rates of exchange for the period. Exchange differences arising from the translation of the results and the retranslation of opening net
assets denominated in foreign currencies and foreign currency borrowings used to hedge those assets are taken directly to reserves. All other exchange differences are taken to the profit and loss account.


|Debt instruments and derivatives
|--------------------------------

Debt instruments, such as secured loan notes, are stated initially at the amount of the proceeds, net of issue costs. Finance costs, which are the difference between the net proceeds and the total amount of payments to be
made in respect of the instruments, are allocated to periods over the term of the debt at a constant rate on the carrying amount. The amount is increased by the finance cost in respect of the reporting period and reduced by payments made in respect
of the debt in that period.


Amounts payable and receivable in respect of derivative financial instruments that hedge the interest rate exposures attached to the debt are accounted for on an accruals basis and treated as part of the finance cost.


F-11

---



Back to Contents

MITCHELLS & BUTLERS PLC


NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 1 Accounting Policies  (Continued)

|Share-based compensation
|------------------------

The
        cost of share awards, being the difference between the market value of
        the shares on the date of grant of the award and the amount of consideration
        the participants may be required to pay for the shares, is charged to the
        profit and loss account over the performance period attached to the award.
        As permitted by UITF 17 Employee Share Schemes, no charge is made in respect of the Companys Sharesave plan. The credit entry for the charge to the
  profit and loss account is reported in the reconciliation of movement in shareholders funds.


The cost of own shares held in treasury (treasury shares) or by the Companys employee share trusts for the purpose of fulfilling obligations in respect of the Groups employee share plans are
deducted from shareholders funds in the consolidated balance sheet.


|Exceptional items
|-----------------

Exceptional items are those which fall within the ordinary activities of the Group and which need to be disclosed by virtue of their size or incidence. Such items are included within operating profit, or interest payable,
unless they represent profits or losses on the sale or termination of an operation, costs of a fundamental reorganization or restructuring (separation costs) or profits or losses on the disposal of fixed assets, other than marginal adjustments to
depreciation previously charged. In these cases, disclosure is made on the face of the profit and loss account after operating profit.  Exceptional items and the tax thereon are excluded from the calculation of adjusted earnings per share.


|Use of estimates
|----------------

The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those
estimates.  Estimates are used when accounting for items such as depreciation and amortization, asset impairments and pensions.


|Companies Act 1985
|------------------

These financial statements do not comprise the Companys statutory accounts within the meaning of section 240 of the Companies Act 1985 of Great Britain.  Statutory accounts for the 53 weeks ended October
1, 2005 and the 52 weeks ended September 25, 2004 have been delivered to the Registrar of Companies for England and Wales. The auditors reports on those accounts were unqualified.


|Note 2  Exchange Rates
|-----------------------

The results of overseas operations have been translated into sterling at the weighted average rate of exchange for the year of £1 = 1.45 (2004 £1 = 1.48, 2003 £1 = 1.48) and euro
denominated assets and liabilities have been translated into sterling at the rate of exchange at the balance sheet date of £1 = 1.47 (2004 £1 = 1.47, 2003 £1 = 1.44) .


F-12

---



Back to Contents

MITCHELLS & BUTLERS
        PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

|Note 3  Change in accounting policy
|------------------------------------

The Group has adopted FRS 17 Retirement Benefits in full with effect from September 26, 2004. In prior years, the Group has complied with the transitional disclosure requirements of this standard. FRS 17 has
been adopted in full in light of the introduction of International Financial Reporting Standards from January 1, 2005; the measurement principles in the equivalent international accounting standard are similar to those in FRS 17. The change in
accounting policy therefore provides investors with greater clarity of earnings and net assets going forward.


The full adoption of FRS 17 has resulted in a change in the accounting treatment of the Groups defined benefit arrangements. In particular, the net liabilities of the pension schemes are
included on the balance sheet, current service costs and net financial returns are included in the profit and loss account and actuarial gains and losses are recognized in the statement of total recognized group gains and losses. Further information
on FRS 17, including the impact on fiscal 2005, is provided in Notes 1 and 7 of Notes to the Financial Statements. Previous accounting under SSAP 24 Accounting for Pension Costs required the charging of regular costs and variations from
regular cost in the profit and loss account with the difference between the cumulative amounts charged and the payments made to the pension schemes shown as either a prepayment or creditor on the balance sheet. This change in accounting policy has
been accounted for as a prior year adjustment and previously reported figures have been restated accordingly, as follows:


|Group profit and loss account |                                |     |         
|----------------------------- | ------------------------------ | --- | --------
|                              |                                |    
|                              | 52 weeks to September 25, 2004 |    
|                              |                                |    
|                              | Profit
before
interest         |     | Interest
|                              |                                |     |         
|                              | (£ million)                    |    
|As previously reported        |                                | 285 |         
|Adoption of FRS 17            |                                | (12 | )       
|                              |                                |     |         
|As restated                   |                                | 273 |         
|                              |                                |     |         

The restated earnings have resulted in restated earnings per share numbers; basic, diluted and adjusted earnings per share have decreased by 1.3p, 1.2p and 1.3p from 22.4p, 22.2p and 22.2p to 21.1p, 21.0p and 20.9p
respectively.


|Group balance sheet    |                    |      |                   |  |                         |   |                            |      |   |  |       |  
|---------------------- | ------------------ | ---- | ----------------- |  | ----------------------- | - | -------------------------- | ---- | - |  | ----- | -
|                       |                    |      |                   |  |                         |   |                            |      |   |  |       |  
|                       | September 25, 2004 |     
|                       |                    |     
|                       | Debtors            |      | Deferred
taxation |  | Net pension
liabilities |   | Equity
shareholders'
funds |     
|                       |                    |      |                   |  |                         |   |                            |      |   |  |       |  
|                       | (£ million)        |     
|As previously reported |                    | 222  |                   |  | (217                    | ) |                            |     |   |  | 1,642 |  
|Adoption of FRS 17     |                    | (140 | )                 |  | 35                      |   |                            | (114 | ) |  | (219  | )
|                       |                    |      |                   |  |                         |   |                            |      |   |  |       |  
|As restated            |                    | 82   |                   |  | (182                    | ) |                            | (114 | ) |  | 1,423 |  
|                       |                    |      |                   |  |                         |   |                            |      |   |  |       |  

|Group profit and loss account |                                |     |          |  |     |   |          |     |   |  |     |  
|----------------------------- | ------------------------------ | --- | -------- |  | --- | - | -------- | --- | - |  | --- | -
|                              |                                |     |          |  |     |   |          |     |   |  |     |  
|                              | 52 weeks to September 27, 2003 |    
|                              |                                |    
|                              | Profit
before
interest         |     | Interest |  | Tax |   | Earnings |    
|                              |                                |     |          |  |     |   |          |     |   |  |     |  
|                              | (£ million)                    |    
|As previously reported        |                                | 228 |          |  | (63 | ) |          | (40 | ) |  | 125 |  
|Adoption of FRS 17            |                                | (9  | )        |  | (2  | ) |          | 3   |   |  | (8  | )
|                              |                                |     |          |  |     |   |          |     |   |  |     |  
|As restated                   |                                | 219 |          |  | (65 | ) |          | (37 | ) |  | 117 |  
|                              |                                |     |          |  |     |   |          |     |   |  |     |  

The restated earnings have resulted in restated earnings per share numbers; basic, diluted and adjusted earnings per share have decreased by 1.1p, 1.1p and 1.1p from 17.0p, 17.0p and 20.3p to 15.9p, 15.9p and 19.2p
respectively.


|Group balance sheet    |                        |     |                   |  |                         |   |                            |      |   |  |       |  
|---------------------- | ---------------------- | --- | ----------------- |  | ----------------------- | - | -------------------------- | ---- | - |  | ----- | -
|                       |                        |     |                   |  |                         |   |                            |      |   |  |       |  
|                       | September
    27, 2003 |    
|                       |                        |    
|                       | Debtors                |     | Deferred
taxation |  | Net pension
liabilities |   | Equity
shareholders
funds |     
|                       |                        |     |                   |  |                         |   |                            |      |   |  |       |  
|                       | (£ million)            |    
|As previously reported |                        | 197 |                   |  | (203                    | ) |                            |     |   |  | 2,064 |  
|Adoption of FRS 17     |                        | (98 | )                 |  | 29                      |   |                            | (170 | ) |  | (239  | )
|                       |                        |     |                   |  |                         |   |                            |      |   |  |       |  
|As restated            |                        | 99  |                   |  | (174                    | ) |                            | (170 | ) |  | 1,825 |  
|                       |                        |     |                   |  |                         |   |                            |      |   |  |       |  

F-13

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 4  Segment Analysis

The Group has two main retail operating segments: Pubs & Bars, focusing on drink and entertainment-led sites, and Restaurants, focusing on food and accommodation-led sites. The other Group activity is property
development which is undertaken by SCPD.


|Turnover    |                 |       |                    |  |                          |  |  |       | 
|----------- | --------------- | ----- | ------------------ |  | ------------------------ |  |  | ----- | 
|            |                 |       |                    |  |                          |  |  |       | 
|            |                 |       |                    |  |                          |  |  |       | 
|            | 53 weeks ended  |       | 52
    weeks ended | 
|            |                 |       |                    | 
|            | October 1,
2005 |       | September 25,
2004 |  | September 27,
      2003 | 
|            |                 |       |                    |  |                          |  |  |       | 
|            | (£ million)     |      
|Pubs & Bars |                 | 957   |                    |  | 913                      |  |  | 873   | 
|Restaurants |                 | 697   |                    |  | 641                      |  |  | 614   | 
|            |                 |       |                    |  |                          |  |  |       | 
|Retail      |                 | 1,654 |                    |  | 1,554                    |  |  | 1,487 | 
|SCPD        |                 | 8     |                    |  | 6                        |  |  | 17    | 
|            |                 |       |                    |  |                          |  |  |       | 
|            |                 | 1,662 |                    |  | 1,560                    |  |  | 1,504 | 
|            |                 |       |                    |  |                          |  |  |       | 
|            |                 |       |                    |  |                          |  |  |       | 

Predominantly all of the Groups turnover arises in the United Kingdom.


|Profit                                               |                             |      |                                                |  |                                      |   |  |     |  
|---------------------------------------------------- | --------------------------- | ---- | ---------------------------------------------- |  | ------------------------------------ | - |  | --- | -
|                                                     |                             |      |                                                |  |                                      |   |  |     |  
|                                                     | 53
        weeks ended      |      | 52
        weeks ended                         | 
|                                                     |                             |      |                                                | 
|                                                     | October
        1,
    2005 |      | September
          25,
    2004
    restated* |  | September 27,
    2003
    restated* |  
|                                                     |                             |      |                                                |  |                                      |   |  |     |  
|                                                     | (£ million)                 |     
|Pubs & Bars                                          |                             | 180  |                                                |  | 173                                  |   |  | 172 |  
|Restaurants                                          |                             | 116  |                                                |  | 99                                   |   |  | 92  |  
|                                                     |                             |      |                                                |  |                                      |   |  |     |  
|Retail                                               |                             | 296  |                                                |  | 272                                  |   |  | 264 |  
|SCPD                                                 |                             | 1    |                                                |  | 1                                    |   |  | 2   |  
|                                                     |                             |      |                                                |  |                                      |   |  |     |  
|                                                     |                             | 297  |                                                |  | 273                                  |   |  | 266 |  
|                                                     |                             |      |                                                |  |                                      |   |  |     |  
|Exceptional items (i)                                |                             | (3   | )                                              |  | (2                                   | ) |  | (55 | )
|Interest on net debt (excluding exceptional interest |                             |      |                                                |  |                                      |   |  |     |  
|charge in 2004 and 2003)                             |                             | (105 | )                                              |  | (101                                 | ) |  | (55 | )
|Net finance income/(expense) in respect of pensions  |                             | 3    |                                                |  | 1                                    |   |  | (2  | )
|                                                     |                             |      |                                                |  |                                      |   |  |     |  
|Profit before taxation                               |                             | 192  |                                                |  | 171                                  |   |  | 154 |  
|                                                     |                             |      |                                                |  |                                      |   |  |     |  

| 
|-
|*

The segmental profit above has been shown before charging the exceptional items described in Note 8 of Notes to the Financial Statements.


|(i) | The allocation of the 2005
          exceptional items, which is a profit on disposal of fixed assets of £1 million and licensing costs of £4 million, is Pubs & Bars £2 million and Restaurants £1 million.
  Included within the 2004 exceptional items is a profit on the disposal of fixed assets of £2 million, all of which relates to Pubs & Bars. After allocating licensing costs and profits on disposal of fixed assets, segmental profits are Pubs
& Bars £178 million (2004 £175 million, 2003 £172 million), Restaurants £115 million (2004 £99 million, 2003 £92 million) and SCPD £1 million (2004 £1 million, 2003 £2
million). Due to the nature of the other exceptional items, in 2004 and 2003,
it is not possible to provide a meaningful allocation of the costs to the operating
segments. See Note 8 of Notes to the Financial Statements.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Predominantly all of the Groups profits arise in the United Kingdom.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   

F-14

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 4  Segment Analysis  (Continued)

|Assets                                 |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|-------------------------------------- | --------------- | ----- | ------------------ |  | --------------- |  | ----------------------- | ----- |  |  | ----- | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|                                       | October 1, 2005 |       | September 25, 2004 | 
|                                       |                 |       |                    | 
|                                       | Total           |       | Net
Operating      |  | Total
restated* |  | Net
Operating
restated* |      
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|                                       | (£ million)     |      
|Pubs & Bars                            |                 | 2,311 |                    |  | 2,067           |  |                         | 2,364 |  |  | 2,106 | 
|Restaurants                            |                 | 1,511 |                    |  | 1,339           |  |                         | 1,481 |  |  | 1,320 | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|Retail                                 |                 | 3,822 |                    |  | 3,406           |  |                         | 3,845 |  |  | 3,426 | 
|SCPD                                   |                 | 19    |                    |  | 17              |  |                         | 24    |  |  | 19    | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|                                       |                 | 3,841 |                    |  | 3,423           |  |                         | 3,869 |  |  | 3,445 | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|Geographical analysis                  |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|United Kingdom                         |                 | 3,795 |                    |  | 3,385           |  |                         | 3,821 |  |  | 3,405 | 
|Rest of Europe                         |                 | 46    |                    |  | 38              |  |                         | 48    |  |  | 40    | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|                                       |                 | 3,841 |                    |  | 3,423           |  |                         | 3,869 |  |  | 3,445 | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|Net operating assets reconciliation    |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|Net assets                             |                 |       |                    |  | 1,417           |  |                         |       |  |  | 1,423 | 
|Net debt                               |                 |       |                    |  | 1,625           |  |                         |       |  |  | 1,632 | 
|Corporate taxation                     |                 |       |                    |  | 60              |  |                         |       |  |  | 59    | 
|Deferred taxation                      |                 |       |                    |  | 185             |  |                         |       |  |  | 182   | 
|Net pension liabilities                |                 |       |                    |  | 99              |  |                         |       |  |  | 114   | 
|Proposed dividend                      |                 |       |                    |  | 37              |  |                         |       |  |  | 34    | 
|Balances relating to exceptional items |                 |       |                    |  |                |  |                         |       |  |  | 1     | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 
|                                       |                 |       |                    |  | 3,423           |  |                         |       |  |  | 3,445 | 
|                                       |                 |       |                    |  |                 |  |                         |       |  |  |       | 

| 
|-
|*



|                  | October 1,
2005 |       | September
25,
2004 | 
|----------------- | --------------- | ----- | ------------------ | 
|                  |                 |       |                    | 
|                  | (£ million)     |      
|Long-lived assets |                 |       |                    | 
|United Kingdom    |                 | 3,487 |                    | 
|Rest of Europe    |                 | 39    |                    | 
|                  |                 |       |                    | 
|                  |                 | 3,526 |                    | 
|                  |                 |       |                    | 

Long-lived assets comprise tangible fixed assets and intangible fixed assets after depreciation and amortization respectively.




|                              | 53
          weeks ended      |     | 52
          weeks ended         | 
|----------------------------- | ----------------------------- | --- | -------------------------------- | 
|                              |                               |     |                                  | 
|                              | October
          1,
    2005 |     | September
          25,
    2004 | 
|                              |                               |     |                                  | 
|                              | (£ million)                   |    
|Depreciation and amortization |                               |     |                                  | 
|Pubs & Bars                   |                               | 66  |                                  | 
|Restaurants (i)               |                               | 50  |                                  | 
|                              |                               |     |                                  | 
|Retail                        |                               | 116 |                                  | 
|SCPD                          |                               |    |                                  | 
|                              |                               |     |                                  | 
|                              |                               | 116 |                                  | 
|                              |                               |     |                                  | 

|   
|---
|(i)

F-15

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 4  Segment Analysis  (Continued)

|                    | 53 weeks ended    |  | 52 weeks ended     | 
|------------------- | ----------------- |  | ------------------ | 
|                    |                   |  |                    | 
|                    | October 1,
  2005 |  | September 25,
2004 | 
|                    |                   |  |                    | 
|                    | (£ million)       | 
|Capital expenditure |                   |  |                    | 
|Pubs & Bars         | 78                |  | 77                 | 
|Restaurants         | 91                |  | 73                 | 
|                    |                   |  |                    | 
|Retail              | 169               |  | 150                | 
|SCPD                | —                 |  | —                  | 
|                    |                   |  |                    | 
|                    | 169               |  | 150                | 
|                    |                   |  |                    | 

Note 5  Costs and Overheads

|                                                             | 53 weeks ended  |  | 52 weeks ended               | 
|------------------------------------------------------------ | --------------- |  | ---------------------------- | 
|                                                             |                 |  |                              | 
|                                                             | October 1,
2005 |  | September 25,
2004 restated* | 
|                                                             |                 |  |                              | 
|                                                             | (£ million)     | 
|Raw materials and consumables                                | 438             |  | 406                          | 
|Changes in stocks of finished goods
    and work in progress | 4               |  | —                            | 
|Staff costs  (Note 7)                                       | 432             |  | 414                          | 
|Depreciation of tangible fixed assets                        | 116             |  | 107                          | 
|Amortization of goodwill                                     | —               |  | 1                            | 
|Hire of plant and machinery                                  | 35              |  | 31                           | 
|Property rentals                                             | 47              |  | 45                           | 
|Other external charges (i) (ii) (iii)                        | 297             |  | 285                          | 
|                                                             |                 |  |                              | 
|                                                             | 1,369           |  | 1,289                        | 
|                                                             |                 |  |                              | 

| | 
| | 
| | 

|      |                                                                                                                                                                                     | 
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|*     | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).                                                               
|     
|(i)   | Operating exceptional costs of £4 million (2004 £2 million, 2003 £5 million) are included in Other external charges.                                                             
|     
|(ii)  | Repairs and maintenance costs are expensed when incurred as Other external charges. Repairs and maintenance costs for 2005 were £38 million (2004 £38 million, 2003 £36 million).
|     
|(iii) | Advertising costs are expensed when incurred as Other external charges. Advertising costs for 2005 were £3 million (2004 £3 million, 2003 £3 million).                           
|     

Note 6  Auditors remuneration





|                   |                              | 53 weeks ended  |  | 52 weeks ended     | 
|------------------ | ---------------------------- | --------------- |  | ------------------ | 
|                   |                              |                 |  |                    | 
|                   |                              | October 1,
2005 |  | September 25,
2004 | 
|                   |                              |                 |  |                    | 
|                   |                              | (£ million)     | 
|Audit fees         |                              | 0.5             |  | 0.4                | 
|Audit related fees |  securitization             | —               |  | 0.2                | 
|                   |  separation and bid defense | —               |  | —                  | 
|                   |  Sarbanes-Oxley             | 0.1             |  | —                  | 
|Tax services       |                              | —               |  | —                  | 
|                   |                              |                 |  |                    | 
|                   |                              | 0.6             |  | 0.6                | 
|                   |                              |                 |  |                    | 

Substantially all remuneration was paid in the United Kingdom.
The fees paid in respect of the securitization have been accounted for as issue
costs of the secured loan notes described in Note 19 of Notes to the Financial
Statements. The separation and bid defense costs were recharged from Six Continents
PLC during 2003 and charged to exceptional items (see Note 8 of Notes to the
Financial Statements).


F-16

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

|Note 7  Staff        |                 |  |                              |  |                              | 
|--------------------- | --------------- |  | ---------------------------- |  | ---------------------------- | 
|                      |                 |  |                              |  |                              | 
|Costs                 |                 |  |                              |  |                              | 
|                      | 53 weeks ended  |  | 52 weeks ended               | 
|                      |                 |  |                              |  |                              | 
|                      | October 1,
2005 |  | September 25,
2004
restated* |  | September 27,
2003
restated* | 
|                      |                 |  |                              |  |                              | 
|                      |                 |  | (£ million)                  |  |                              | 
|Wages and salaries    | 388             |  | 370                          |  | 353                          | 
|Social security costs | 30              |  | 29                           |  | 27                           | 
|Pensions              | 14              |  | 15                           |  | 14                           | 
|                      |                 |  |                              |  |                              | 
|                      | 432             |  | 414                          |  | 394                          | 
|                      |                 |  |                              |  |                              | 

|  |                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------
|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).

Employee numbers

Average number of employees, including part-time employees:


|                      | 53 weeks ended  |  | 52 weeks ended     | 
|--------------------- | --------------- |  | ------------------ | 
|                      |                 |  |                    | 
|                      | October 1,
2005 |  | September 25,
2004 | 
|                      |                 |  |                    | 
|                      | (Number)        | 
|Retail                | 37,407          |  | 37,200             | 
|SCPD                  | 4               |  | 7                  | 
|                      |                 |  |                    | 
|Continuing operations | 37,411          |  | 37,207             | 
|                      |                 |  |                    | 
|                      |                 |  |                    | 

Pensions

Retirement and death benefits are provided for eligible
  employees in the United Kingdom principally by the Mitchells & Butlers Pension Plan (MABPP) and the Mitchells & Butlers Executive Pension Plan
(MABEPP). The defined benefit sections of the plans closed to new entrants during 2002 with new members provided with defined contribution arrangements.  The assets of the plans are held in self-administered trust funds separate from the
Companys assets.


The Group has adopted FRS 17 Retirement Benefits in full for the 53 weeks ended October 1, 2005 and prior year amounts have been restated accordingly.  See Note 3 of Notes to the Financial Statements for
further details. In previous years, the Group accounted for pensions under SSAP 24 and gave disclosures under the transitional arrangements of FRS 17.


Pension costs are assessed in accordance with the advice of independent qualified actuaries.  The Groups total pension cost included within operating profit for the 53 weeks ended October
1, 2005 under FRS 17 was £14 million (2004 £15 million, 2003 £14 million), comprising £13 million (2004 £14 million, 2003 £14 million) in respect of the defined benefit pension arrangements and £1 million (2004
£1 million, 2003 £nil) in respect of the defined contribution arrangements.


The total pension cost for the 53 weeks ended October 1, 2005 included within operating profit compares to £45 million (2004 £3 million, 2003 £5 million) which would have been incurred under SSAP 24. The
SSAP 24 cost would have been higher this year reflecting the impact of the full actuarial variations of the pension schemes at March 31, 2004. If FRS 17 had not been adopted, the net assets of the Group would have been £200 million higher at
October 1, 2005 under SSAP 24.


Had SSAP 24 been applied in fiscal 2005 profit on ordinary activities before taxation, earnings available for shareholders, basic earnings per share, diluted earnings per share and adjusted earnings per share would
decrease by £34 million, £24 million, 4.7p, 4.6p and 4.7p from £192 million, £133 million, 26.0p, 25.6p and 26.0p to £158 million, £109 million, 21.3p, 21.0p and 21.3p respectively.


F-17




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

Pensions  (Continued)

In the 53 weeks ended October 1,
    2005, the Group paid regular contributions to the pension plans of £12
    million in respect of the defined benefit arrangements and additional contributions
    of £30 million. In 2004,
the regular contributions were £4 million with an additional £5 million
having been prepaid in 2003 and additional contributions were £40 million.
In 2003, the regular contributions were £10 million, including £5 million
 prepaid for the 52 weeks ended September 25, 2004, and additional contributions
of £27 million were paid. Employer contribution rates to the defined benefit
arrangements for 2005/06 are 16.5% for the MABPP and 34.0% for the MABEPP, which
are
expected to result in cash payments of £11 million in 2005/06. It has also
been agreed that further additional contributions of £30 million will be
paid over the next two years, of which £10 million relates to the agreement
reached at
the time of the securitization.  £20 million of these additional contributions
were paid on October 21, 2005.


The Group also paid £1 million (2004 £1 million, 2003 £nil) in respect of the defined contribution arrangements.


The valuations used for FRS 17 purposes are based on the results of the full actuarial valuations carried out at March 31, 2004 updated by the independent qualified actuaries to October 1, 2005. Scheme assets are stated at
market value at October 1, 2005 and the liabilities of the schemes have been assessed as at the same date using the projected unit method. As the defined benefit sections of the pension plans are now closed to new members, the current service cost
as calculated under the projected unit method will increase as members approach retirement. The principal financial assumptions used by the actuaries at the balance sheet date were:


October 1,2005
        
        September 25,
2004
        
        September
        27,
        2003Wages and salaries increases
        4.3%
        
        4.3%
        
        4.2%Pensions increases
        2.8%
        
        2.8%
        
        2.7%Discount rate
        5.0%
        
        5.5%
        
        5.3%Inflation rate
        2.8%
        
        2.8%
        
        2.7% The combined assets of the MABPP and MABEPP, their expected rates of return and the value of the pension scheme assets and liabilities at the balance sheet date can be summarized as follows:
 Long-term
rates of
return
expected
October 1,
2005
        
        Value at
October 1,
2005
        
        Long-term
rates of
return
expected
September 25,
2004
        
        Value at
September 25,
2004
        
        Long-term
rates of
return
expected
September 27,
2003
        
        Value at
September
        27,
        2003(%)
        
        (£ million)
        
        (%)
        
        (£ million)
        
        (%)
        
        (£ million)Equities
        7.5
        
        564
        
        8.0
        
        460
        
        8.0
        
        396Bonds
        4.6
        
        428
        
        4.9
        
        373
        
        4.9
        
        355Property
        7.5
        
        90
        
        8.0
        
        82
        
        8.0
        
        74Total market value of assets
        
        
        1,082
        
        
        
        915
        
        
        
        825Present value of scheme liabilities
        
        
        (1,230
        )
        
        
        (1,088
        )
        
        
        (1,068
        )Deficit in the schemes
        
        
        (148
        )
        
        
        (173
        )
        
        
        (243
        )Related deferred tax
asset
        
        
        49
        
        
        
        59
        
        
        
        73Net pension liabilities
        
        
        (99
        )
        
        
        (114
        )
        
        
        (170
        ) F-18




Back to Contents

MITCHELLS & BUTLERS PLC


NOTES TO THE FINANCIAL STATEMENTS (Continued)

The expected long term rates of return for various
    asset classes have been determined by reference to the yields available on
    long term fixed interest gilts (UK Government bonds). To reflect the additional
    risks  associated with each asset class, risk premia relative to government
    bonds are assigned. These risk premia are set after taking actuarial advice
    and are long term assumptions. The risk premium appropriate to holdings in
    equities is 3.2% per year as
  at October 1, 2005 (2004 3.2%, 2003 3.3%).


The Groups investment strategy for its defined benefit pension arrangements is decided by the trustees of the plans, following consultation with the Company. The objective of the investment strategy is to achieve a
target rate of return that, alongside additional company contributions, will return the plans to a fully funded basis over the medium term.


This objective is achieved by taking an acceptable amount of risk relative to the liabilities, implemented by using specified allocations to a variety of asset classes that are expected over the long term to deliver the
target rate of return.  Volatility of return is further mitigated through diversification across a number of asset classes (equities, bonds, property), geographical investment markets (United Kingdom, United States, continental Europe, Asia-Pacific)
and investment styles (mix between active and passive management). The current strategy is to target approximately 50% in equities, 42% in bonds and 8% in property.


F-19




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

The following amounts relating to the Groups defined benefit arrangements have been recognized in the Group profit and loss account and statement of total recognized group gains and losses:


|                                                                                    |                                       |   |                          |   |      |  
|----------------------------------------------------------------------------------- | ------------------------------------- | - | ------------------------ | - | ---- | -
|53 weeks
      ended                                                                | 52 weeks ended                       
|                                                                                    |                                       |   |                         
|October 1,2005                                                                      | September 25,
      2004              |   | September 27,
      2003
|                                                                                    |                                       |   |                         
|                                                                                    | (£ million,
      except percentages)
|Group profit and loss account                                                       |                                       |   |                          |   |      |  
|Operating profit:                                                                   |                                       |   |                          |   |      |  
|Current service cost                                                                | (12                                   | ) | (14                      | ) | (13  | )
|Past service cost                                                                   | (1                                    | ) | —                        |   | (1   | )
|                                                                                    |                                       |   |                          |   |      |  
|Charge to operating profit                                                          | (13                                   | ) | (14                      | ) | (14  | )
|Interest:                                                                           |                                       |   |                          |   |      |  
|Expected return on pension scheme
      assets                                      | 62                                    |   | 57                       |   | 48   |  
|Interest on pension scheme liabilities                                              | (59                                   | ) | (56                      | ) | (50  | )
|                                                                                    |                                       |   |                          |   |      |  
|Net finance income/(expense) in
      respect of pensions                           | 3                                     |   | 1                        |   | (2   | )
|                                                                                    |                                       |   |                          |   |      |  
|Net pension cost before taxation                                                    | (10                                   | ) | (13                      | ) | (16  | )
|                                                                                    |                                       |   |                          |   |      |  
|Statement of total recognized
      group gains and losses                          |                                       |   |                          |   |      |  
|Actual return less expected return
      on pension scheme assets                   | 100                                   |   | 27                       |   | 39   |  
|Experience gains and losses arising
      on the scheme liabilities                 | —                                     |   | 20                       |   | (11  | )
|Changes in assumptions underlying
      the present value of the scheme liabilities | (107                                  | ) | (8                       | ) | (99  | )
|                                                                                    |                                       |   |                          |   |      |  
|Actuarial (loss)/gain recognized                                                    | (7                                    | ) | 39                       |   | (71  | )
|                                                                                    |                                       |   |                          |   |      |  
|Movement in the combined
      MABPP and MABEPP deficit is analyzed as follows:     |                                       |   |                         
|Deficit at September 26                                                             | (173                                  | ) | (243                     | ) | (198 | )
|Operating profit charge                                                             | (13                                   | ) | (14                      | ) | (14  | )
|Net finance income                                                                  | 3                                     |   | 1                        |   | (2   | )
|Contributions paid                                                                  | 42                                    |   | 44                       |   | 42   |  
|Actuarial (loss)/gain recognized                                                    | (7                                    | ) | 39                       |   | (71  | )
|                                                                                    |                                       |   |                          |   |      |  
|Deficit at October 1                                                                | (148                                  | ) | (173                     | ) | (243 | )
|                                                                                    |                                       |   |                          |   |      |  
|History of experience gains and
      losses                                        |                                       |   |                          |   |      |  
|Difference between the expected
      and actual return on scheme assets            |                                       |   |                          |   |      |  
|Amount                                                                              | 100                                   |   | 27                       |   | 39   |  
|Percentage
        of scheme assets                                                 | 9%                                    |   | 3%                       |   | 5%   |  
|Experience gains and losses on scheme
      liabilities                             |                                       |   |                          |   |      |  
|Amount                                                                              | —                                     |   | 20                       |   | (11  | )
|Percentage
        of the present value of the scheme liabilities                   | —                                     |   | 2%                       |   | (1%  | )
|Total amount recognized in the STRGL                                                |                                       |   |                          |   |      |  
|Amount                                                                              | (7                                    | ) | 39                       |   | (71  | )
|                                                                                    |                                       |   |                          |   |      |  
|Percentage
        of the present value of the scheme liabilities                   | (1%                                   | ) | 4%                       |   | (7%  | )

There are no material post-retirement obligations
other than pensions.


F-20

---



Back to Contents

MITCHELLS & BUTLERS PLC


NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

Remuneration policy for Executive Directors

The following overall policy has applied throughout fiscal 2005 and will apply for fiscal 2006. This policy continues to apply notwithstanding the proposed amendments to elements of the Executive Directors
remuneration packages. For subsequent years, the Committee will review the policy and recommend changes as appropriate.


| | • | Remuneration packages are designed to attract, retain and motivate Executive Directors of the highest caliber.                                                                                                                                     
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                    
| | • | The packages will be competitive within the leisure retailing industry and in those markets from which the organization recruits.                                                                                                                  
| |   |                                                                                                                                                                                                                                                    
| | • | In fixing remuneration, note will be taken of reward levels in the wider community and of the remuneration structure throughout the organization.                                                                                                  
| |   |                                                                                                                                                                                                                                                    
| | • | There will be an appropriate balance between fixed and variable risk reward. The latter will be linked to the performance of the individual and of the Group.                                                                                      
| |   |                                                                                                                                                                                                                                                    
| | • | Basic salary will normally be set at median market level when compared with an appropriate comparator group.                                                                                                                                       
| |   |                                                                                                                                                                                                                                                    
| | • | Using target or projected value calculations, performance-related incentives for Executive Directors will equate to approximately 60% of total remuneration.                                                                                       
| |   |                                                                                                                                                                                                                                                    
| | • | Share and cash incentives will be designed so as to align the interests of Executive Directors with those of shareholders. Shares arising from share schemes should not normally be sold until
  the minimum level of ownership has been satisfied.

The Committee is considering the impact of the transition to IFRS on its incentive schemes and will make adjustments to ensure that measurement of achievement against the performance conditions
remain fair, reasonable and consistent.


Non-Executive Directors are paid a basic fee with additional fees for membership of the Remuneration and Audit Committees and for chairing those committees.  The fees are approved by the Board on the recommendation of the
Executive Directors, based on a review of the fees paid in other companies of a similar size. It is intended to carry out a review of these fees in April 2006 as they have remained unchanged since demerger. Non-Executive Directors do not participate
in the Companys share schemes.


Components of remuneration packages

| | (i) Basic
      salary
| | ----------------------
|
| |                       
| |                       
|
| |                       
| |                       
|
| |                       
| |                       
|
| |                       
| |                       
|
| |                       
| |                       
|

F-21

---



Back to Contents

MITCHELLS & BUTLERS PLCNOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

|(ii)  | Annual
      performance bonus                                                                                                                                                                                                                                                                                                                                                                                        
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                                                                                                                                                                       
|      | Challenging performance
          goals are set which must be achieved before a bonus becomes payable.
          Up to fiscal 2005, the
        maximum bonus opportunity has been 80% of salary. For the year to October
          1, 2005, 60% (2003/4 50%) was linked to earnings per share (eps)
        and 20% (2003/4 30%) to personal and Group business objectives as set
      out on page F-26.          
|      |                                                                                                                                                                                                                                                                                                                                                                                                                       
|      | At the Remuneration Committees discretion,
      the bonus is payable either in cash or in shares under the Short Term Deferred
      Incentive Plan as set out below.                                                                                                                                                                                                                                               
|      |                                                                                                                                                                                                                                                                                                                                                                                                                       
|(iii) | Short Term Deferred Incentive Plan (STDIP)                                                                                                                                                                                                                                                                                                                                                                          
|      |                                                                                                                                                                                                                                                                                                                                                                                                                       
|      | Under the STDIP, an award
          of bonus shares earned in fiscal 2005 will be deferred for three years
          and, if the Executive Director
        is in the Companys employment at the end of that period, the Company
      will provide matching shares on a 1:1 basis.                                                                                                                                  
|      |                                                                                                                                                                                                                                                                                                                                                                                                                       
|      | Vesting of matching shares takes place subject
        to the achievement of a three year performance condition, as approved by
        shareholders at the 2005 AGM. There is no retesting of the performance condition.
        For awards of matching shares in respect of fiscal 2005, the performance
        condition is based on growth in eps as described under the Executive Share
      Option Plan below.
|      |                                                                                                                                                                                                                                                                                                                                                                                                                       
|      | Eps has been applied
          because it is a measure which reflects movement in shareholder value
          and the target, if met, would
        represent a significant and challenging improvement in the Companys
        performance. The Companys auditors will review performance against
      the target.                                                                                                
|     

Performance Restricted Share Plan (PRSP)

The PRSP allows Executive Directors to receive
    cash or nominal cost options over shares subject to the satisfaction of a
    performance condition set by the Committee which is measured over a three
    year period.


Currently, three cycles are being operated, with
    performance conditions based on total shareholder return (TSR)
    and cash return on capital employed (CROCE) exceeding the weighted
    average cost of capital (WACC) as described below.


For each cycle 50% of the award is measured by
    reference to TSR performance against a comparator group of other companies.


For the cycle to September 2005 the Company has
    to finish in first to sixth position for an award to vest, graded between
    100% of the TSR element of the award for first or second to 20% for sixth
    position. Below sixth position, the award relating to TSR lapses. The Company
    finished in ninth position, so no award will vest. For the cycles to September
    2006 and September 2007, the Company has to finish in first to fifth position
    for an award to vest, graded between 100% of the TSR element of the award
    for first to 20% for fifth position. Below fifth position the award relating
    to TSR lapses.


The vesting of the other 50% of the award is based
    on the average amount by which the Companys CROCE exceeds WACC over
    the performance period. The award for this element of the performance measure
    is graded so that, for the cycles to September 2005 and September 2006, if
    the amount by which the CROCE exceeds WACC over the performance period is
    at least 4.5 percentage points, 100% of the CROCE element of the award will
    vest. If the excess is 3 percentage points, 20% of the award will vest. In
    between 3 and 4.5 percentage points, the award will be graded on a straight
    line basis. Below 3 percentage points, there will be no award in respect of
    this element. The excess of CROCE over WACC for the cycle to September 2005
    was 4.2 percentage points, therefore 84% of this element of the award will
    vest.


For the cycle to September 2007, the vesting of
    the other 50% is based on the excess of CROCE over WACC as described above,
    except that if the amount by which the CROCE exceeds WACC over the performance
    period is at least 5 percentage points, 100% of the CROCE element of the award
    will vest, whereas, if the excess is 3.5 percentage points, 20% will vest.
 TSR was chosen as a measure because it aligns
        the interest of management with that of shareholders. The CROCE versus
        WACC measure was chosen to incentivize the Executive Directors to increase
        the cash returns generated by the business and to reduce the overall
        cost of funding to the Company, thereby maximizing the spread between
        the two and increasing shareholder value.
 The Companys auditors review
        the achievement of the performance condition under PRSP.


F-22

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS
  (Continued)



Executive Share Option Plan (EXSOP)

Grants of EXSOP options have been made annually.
    Grants have been made at the discretion of the Committee according to seniority,
    the maximum value in any one year being two times salary. In determining the
    level of grant, the Company has taken into account the level of awards made
    under the Performance Restricted Share Plan. The grant of options has been
    restricted so that in each year the aggregate of (i) 25% of the market value
    of the ordinary shares over which an option has been granted under EXSOP and
    (ii) 33% of the market value of the ordinary shares over which an award has
    been made under the Performance Restricted Share Plan, has not exceeded 80%
    of an employees salary, taking the market value in each case as at the
    date of grant. These limits can only be exceeded in special circumstances.
    A performance condition, set by the Committee, has to be met before the options
    may be exercised. The performance condition for the grant made in May 2003
    was based on the cumulative growth of the Companys eps over the three
    year performance period exceeding the UK Retail Prices Index (RPI)
    by 12 percentage points. As this performance condition has been achieved,
    100% of the options will become exercisable in May 2006. For options granted
    in 2004, the performance measure is that cumulative eps over the three year
    performance period must increase by at least 18 percentage points over the
    growth in RPI before the options can be exercised in full. For options granted
    in 2005, the performance measure is that the Companys cumulative eps
    over the three year performance period must increase by at least 27 percentage
    points over the growth in RPI before options can be exercised in full. In
    measuring eps growth to determine whether the performance condition has been
    satisfied, the Committee uses adjusted/pro forma eps as reported in the year.
    The Companys auditors review the achievement of the performance measure
    under EXSOP. If these performance targets are not met in full, some or all
    of the options will lapse. Retesting is not permitted for options granted
    in 2004 and 2005.


Following shareholder approval to amend the rules
       of the STDIP and PRSP at the 2006 AGM, no further awards are intended
      to be
    made under the EXSOP.


On demerger from Six Continents, the Groups
    executives, including the Executive Directors, with outstanding options under
    the Six Continents Executive Share Option Schemes, were permitted to roll
    over those options into options of equivalent value over the Companys
    shares. The performance conditions ceased to apply to those options on demerger.


Executive Directors may participate in the all
    employee Sharesave Plan and Share Incentive Plan; performance targets do not
    apply to such plans.


During the year, the Company has remained within
    its headroom limits for the issue of new shares for share plans as set out
    in the rules of the plans. At October 1, 2005, the position under both the
    5% in 10 years limit for discretionary plans and the 10%
    in 10 years limit for all share plans was that shares equivalent to
    1.9% of the ordinary share capital had been allocated.


F-23

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

Companies used for comparison

In assessing overall levels of pay and benefits,
    the Committee takes into account the packages offered by comparator companies.
    These companies are chosen by the Committee following advice from independent
    external consultants, having regard to:


|(i)   | industry sector to include direct
      competitors and the wider retail sector;
|----- | --------------------------------------------------------------------------------
|     
|(ii)  | size  turnover, profits,
      margins and the number of people employed; and  
|     
|(iii) | structure and complexity of the
      business.                                 
|     

Directors contracts

It is the Companys normal policy to provide Executive Directors with rolling 12 month contracts, which provide for 12 months notice from the Company and six months notice from the Director.  Service contracts provide
for summary termination in the event of gross misconduct.  In other circumstances, any severance payment would normally be based on a valuation of net pay and benefits for any unexpired notice period in the expectation that the Director had made
reasonable attempts to mitigate his loss. Benefits normally include membership of a pension scheme and a healthcare scheme and use of a company car. The Remuneration Committee has decided to introduce, for new appointees to the Board, phased
compensation payments on loss of office. This reflects emerging best practice.


|             |  |                                 |  |                        |  |                     |  |                                                 | 
|------------ |  | ------------------------------- |  | ---------------------- |  | ------------------- |  | ----------------------------------------------- | 
|             |  |                                 |  |                        |  |                     |  |                                                 | 
|             |  | Contract
      start
      date |  | Unexpired
    term (i) |  | Notice
      period |  | Compensation 
payable on
early
termination
(ii) | 
|             |  |                                 |  |                        |  |                     |  |                                                 | 
|Director     |  |                                 |  |                        |  |                     |  |                                                 | 
|Mike Bramley |  | 04.15.03                        |  | Indefinite             |  | 12 months           |  | n/a                                             | 
|Tim Clarke   |  | 04.15.03                        |  | Indefinite             |  | 12 months           |  | n/a                                             | 
|Tony Hughes  |  | 04.15.03                        |  | Indefinite             |  | 12 months           |  | n/a                                             | 
|Karim Naffah |  | 04.15.03                        |  | Indefinite             |  | 12 months           |  | n/a                                             | 

|    
|----
|(i) 
|(ii)
|    

Non-Executive Directors do not
      have service contracts, but operate under a letter of appointment which
      provides for their tenure
    of office to be reviewed when they are about to stand for re-election, which
      is every three years. In any event, Non-Executive Directors may not serve
      after the AGM following their 67th birthday. There is no notice period
      and
    no provision for termination payments. The dates of appointment of Non-Executive
    Directors are set out on page 48.


UK-based Executive Directors and senior employees
    participate with other members in the Mitchells & Butlers Executive Pension
    Plan and, if appropriate, the Mitchells & Butlers Executive Top-Up Scheme.
    Executives in Germany, who do not participate in these plans, are entitled
    to participate in relevant local plans. The Remuneration Committee is considering
    the Companys current policy of using the Executive Pension Plan and
    the Executive Top-Up Scheme to provide pension and related benefits in a tax
    efficient way in light of the new legislation being introduced in April 2006.


F-24

---



Back to Contents

MITCHELLS & BUTLERS PLC


NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

Policy on external appointments

The Company recognizes that its Directors may be
    invited to become non-executive directors of other listed companies and that
    such duties can broaden experience and knowledge, which will benefit the
    Company. Executive Directors are therefore allowed to accept one non-executive
    appointment with the Companys prior approval and as long as this is not likely to lead to conflict of interest. Fees received may be retained by the Director. Tim Clarke was appointed
  a non-executive director of Associated British Foods plc during the year, and received £34,090
  during the year for that appointment.


Directors emoluments

Directors emoluments from Mitchells & Butlers plc since April 15, 2003:


|                            |               |  |                    |  |                    |  | Total emoluments excluding pensions | 
|--------------------------- | ------------- |  | ------------------ |  | ------------------ |  | ----------------------------------- | 
|Annual
performance
bonus(i) |              
|Salaries
and fees           | 2005
53 weeks |  | 2004 (iv)
52 weeks |  | 2003
(iv)
52 weeks
|Benefits                   
|                            |               |  |                    |  |                   
|                            | (£ thousand)  | 
|Executive Directors         |               |  |                    |  |                    |  |                                     | 
|Mike Bramley                | 356           |  | 177                |  | 16                 |  | 549                                 | 
|Tim Clarke                  | 528           |  | 289                |  | 25                 |  | 842                                 | 
|Tony Hughes                 | 356           |  | 194                |  | 25                 |  | 575                                 | 
|Karim Naffah                | 376           |  | 205                |  | 14                 |  | 595                                 | 
|                            |               |  |                    |  |                    |  |                                     | 
|Non-Executive Directors     |               |  |                    |  |                    |  |                                     | 
|Roger Carr                  | 203           |  |                   |  |                   |  | 203                                 | 
|George Fairweather          | 50            |  |                   |  |                   |  | 50                                  | 
|Drummond Hall (ii)          | 43            |  |                   |  |                   |  | 43                                  | 
|Sir Tim Lankester (iii)     | 43            |  |                   |  |                   |  | 43                                  | 
|Sara Weller                 | 50            |  |                   |  |                   |  | 50                                  | 
|                            |               |  |                    |  |                    |  |                                     | 
|Total 2005                  | 2,005         |  | 865                |  | 80                 |  | 2,950                               | 
|                            |               |  |                    |  |                    |  |                                     | 
|Total 2004 (iv)             | 1,882         |  | 1,105              |  | 77                 |  |                                     | 
|                            |               |  |                    |  |                    |  |                                     | 
|Total 2003 (iv) (v)         | 848           |  | 379                |  | 36                 |  |                                     | 
|                            |               |  |                    |  |                    |  |                                     | 

| | 
| | 

|(i)   | Annual performance bonuses as described above for 2004 and 2003 were wholly deferred into shares under the terms of the STDIP.                                                                                                                                                                                                                           
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | Appointed July 30, 2004, Drummond Halls fees are paid to Dairy Crest Group plc, his employer.                                                                                                                                                                                                                                                           
|(iii) | Appointed May 16, 2003.                                                                                                                                                                                                                                                                                                                                  
|(iv)  | The prior years are restated to remove the value
      of shares awarded under the Share Incentive Plan, shown on page F-28.                                                                                                                                                                                                                             
|(v)   | For 2003, the year of the Companys separation from Six Continents PLC, emoluments cover the period from appointment to the Board of Mitchells & Butlers plc. Roger Carr and Tim Clarke, who were directors of Six
Continents PLC for part of that year, received emoluments, not included above, of £56,000 and £363,000 respectively from that company.
|     

The figures above represent emoluments earned during the periods shown. There were no payments for loss of office.


Benefits incorporate the value of all benefits arising from employment with the Company, which primarily relate to the provision of a company car and healthcare cover.


F-25

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

Salary

As at October 1, 2005 and November 29, 2005, the basic annual salaries of the Executive Directors were as shown below.  The normal salary review date has been changed with respect from 2005/06 onwards from October 1 to
  January 1.


|                   | October 1,   | 
|------------------ | ------------ | 
|2005 and          
|November 29,      
|2005              
|                   |              | 
|                   | (£ thousand) | 
|Executive Director |              | 
|Mike Bramley       | 350          | 
|Tim Clarke         | 520          | 
|Tony Hughes        | 350          | 
|Karim Naffah       | 370          | 

Annual performance bonus

The bonus for each Executive Director for 2004/05 was as follows:


|                   |              |          |            |            | Gross        |  |     |  |    |  |     | 
|------------------ | ------------ | -------- | ---------- | ---------- | ------------ |  | --- |  | -- |  | --- | 
|Maximum            | Gross value  | value of |            | Group &    | Net value of
|bonus              | of bonus     | bonus    |            | personal   | bonus       
|achievable         | awarded (i)  | deferred | Eps target | objectives | awarded (ii)
|                   |              |          |            |            |              |  |     |  |    |  |     | 
|                   | (£ thousand) |         
|Executive Director |              |          |            |            |              |  |     |  |    |  |     | 
|Mike Bramley       | 280          |          | 177        |            | 177          |  | 145 |  | 32 |  | 104 | 
|Tim Clarke         | 416          |          | 289        |            | 145          |  | 216 |  | 73 |  | 171 | 
|Tony Hughes        | 280          |          | 194        |            | 194          |  | 145 |  | 49 |  | 114 | 
|Karim Naffah       | 296          |          | 205        |            | 103          |  | 153 |  | 52 |  | 121 | 

| | 
| | 

|(i)  | The Committee exercised its discretion to defer 100% of bonus in respect of Mike Bramley and Tony Hughes and 50% of bonus in respect of Tim Clarke and Karim Naffah into shares under the STDIP.        Tim
  Clarke and Karim Naffah received the balance of their award in cash as both have
  achieved their mandatory stockholding requirement by December 31, 2005.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | Assuming income tax at 40% and NI at 1%.                                                                                                                                                                                                                                                                                                                                
|    

To achieve maximum bonus, Directors had to meet
    targets to support the Companys strategy related to the Companys
    earnings per share performance, and Group and personal business objectives.


|• | Group and personal business objectives
    related to:                                                                                     
|- | -------------------------------------------------------------------------------------------------------------------------------------------
| 
|  |                                                                                                                                           
| 
|  |                                                                                                                                           
| 
|  |                                                                                                                                           
| 
|  |                                                                                                                                           
| 
|  |                                                                                                                                           
| 
|  |                                                                                                                                           
| 
|• | Personal business objectives related
        to the financial performance in the business areas for which the Director
    was responsible.
| 

F-26

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note
        7  Staff  (Continued)

Short Term Deferred Incentive Plan

In respect of fiscal 2003 and 2004, all of the Directors bonus
    awards were deferred into shares. The table below shows the maximum matching
    shares received or receivable. These include those shares in respect of fiscal
    2004 which were awarded in December 2004.


|             |             |            |              |           | 2005      |          
|------------ | ----------- | ---------- | ------------ | --------- | --------- | ---------
|             |             |            |              |           |           |          
|             |             |            |              |           | Number of |          
|             |             |            |              | shares    | Value of  | Number of
|             | Value of    | awarded    | shares       | shares    | shares    | Total    
|Number of    | shares as   | in 2004/05 | awarded      | vested in | vested in | number of
|shares as    | at 09.26.04 | (v) (vi)   | in the year  | the year  | the year  | shares at
|at 09.26.04  | (i)         | (vii)      | (ii)         | (vi)      | (iii)     | 10.01.05 
|             |             |            |              |           |           |          
|             |             |            | (£ thousand) |           |           |          
|Director     |             |            |              |           |           |          
|Mike Bramley | 17,343      |            | 45           |           | 31,463    |          
|Tim Clarke   | 26,682      |            | 69           |           | 59,874    |          
|Tony Hughes  | 17,343      |            | 45           |           | 39,329    |          
|Karim Naffah | 18,678      |            | 48           |           | 42,264    |          

| | 
| | 

|(i)   | based on share price on September
    25, 2004  259p                                                                                                                                                                                                            
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii)  | based on share price on December
    7, 2004, the date of award  322.25p                                                                                                                                                                                        
|(iii) | based on share price on December
    9, 2004, the date of vesting  316.5p                                                                                                                                                                                       
|(iv)  | based on share price on October
    1, 2005  365.25p                                                                                                                                                                                                            
|(v)   | these shares relate to the bonus
    award in respect of fiscal 2004                                                                                                                                                                                             
|(vi)  | no performance condition
        attached to these matching shares under the rules of the STDIP as approved
        by shareholders on demerger. All future awards of matching shares have
        a performance condition. Shares vest subject
    to tax and NI
|(vii) | the weighted average grant date fair value per bonus
or matching share awarded was 301.6p                                                                                                                                                                        

As part of the terms of demerger, the Company provided 17,371 shares in December 2004 to Tim Clarke to meet entitlements he had accrued under the Six Continents Special Deferred Incentive Plan for fiscal 2003 to the date
  of demerger.


The PRSP was introduced on demerger, initially to replace the Six Continents Long Term Incentive Plan for Mitchells & Butlers executives. Participation in the PRSP is by means of an option which is exercisable
for nominal consideration, once the performance condition has been satisfied.


In fiscal 2005, there were three cycles of the plan in operation as outlined below.


|(i)   | A 30-month performance period to September 2005. The
  combined award, which vests on December 1, 2005, from the two measures (TSR and
  excess of CROCE over WACC as described on page F-22) is equivalent to 37.8% of
  basic
  salary at the date of the award.
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |                                                                                                                                                                                                                                                                   
|     
|(ii)  | A 36-month performance period to September 2006. The combined maximum award from the two measures is equivalent to 90% of basic salary at the date of the award.                                                                                                  
|      |                                                                                                                                                                                                                                                                   
|     
|(iii) | A 36-month performance period to September 2007. The combined maximum award is also equivalent to 90% of basic salary at the date of the award.                                                                                                                   
|      |                                                                                                                                                                                                                                                                   
|     
|      | Details of the performance measures are set out on
page F-22.                                                                                                                                                                                                     
|     

F-27

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

The maximum number of shares available as at the year end in respect of all three cycles as described above, and assuming all performance targets are achieved, is:


|                   |  | Maximum
    potential shares
    as at 09.26.04 |  | Shares lapsed in
      year (i) |  | Shares granted
      in year (ii) |  | Maximum
    potential shares
    as at 10.01.05 |  | Maximum
      potential award
      as at 10.01.05
    (iii) |  | Earliest vesting
      date (iv) | 
|------------------ |  | ----------------------------------------------- |  | ------------------------------- |  | --------------------------------- |  | ----------------------------------------------- |  | ------------------------------------------------------------ |  | -------------------------------- | 
|                   |  |                                                 |  |                                 |  |                                   |  |                                                 |  |                                                              |  |                                  | 
|                   |  |                                                 |  |                                 |  |                                   |  |                                                 |  | (£ thousand)                                                 |  |                                  | 
|Executive Director |  |                                                 |  |                                 |  |                                   |  |                                                 |  |                                                              |  |                                  | 
|Mike Bramley       |  | 355,888                                         |  | 88,636                          |  | 98,822                            |  | 366,074                                         |  | 1,337                                                        |  | 12.01.05                         | 
|Tim Clarke         |  | 545,361                                         |  | 136,363                         |  | 146,822                           |  | 555,820                                         |  | 2,030                                                        |  | 12.01.05                         | 
|Tony Hughes        |  | 355,888                                         |  | 88,636                          |  | 98,822                            |  | 366,074                                         |  | 1,337                                                        |  | 12.01.05                         | 
|Karim Naffah       |  | 382,954                                         |  | 95,454                          |  | 104,470                           |  | 391,970                                         |  | 1,432                                                        |  | 12.01.05                         | 

| | 
| | 

|(i)   | no awards vested during fiscal 2005                                      
|----- | -------------------------------------------------------------------------
|(ii)  | the share price on December 3, 2004, the
      date of award, was 321.50p
|(iii) | based on the share price on October 1, 2005  365.25p                    
|(iv)  | shares vest subject to tax and NI                                        

The awards which vested in 2003, were paid in cash on December 10, 2003. The gross amounts were: Mike Bramley  £98,000; Tim Clarke  £150,000; Tony Hughes  £98,000 and Karim Naffah 
£105,000.


|Share Incentive plan (SIP)
|----------------------------

In respect of the all employee SIP, as described
    on page F-23, the Executive Directors had the following conditional entitlements
    as at October 1, 2005, subject to the rules of the plan:


|             |  | Free shares
    awarded on
    06.30.03 at232.5p (i) which
    vest on 06.30.06 |     | Free sharesawarded on06.28.04 at271.75p (i) whichvest on 06.28.07 |  | Free sharesawarded on06.30.05 at 330p (i)which vest on06.30.08 (ii) |  | Total shares |    
|------------ |  | ------------------------------------------------------------------------------- | --- | ----------------------------------------------------------------- |  | ------------------------------------------------------------------- |  | ------------ | ---
|             |  |                                                                                 |    
|             |  |                                                                                 |    
|             | 
|             | 
|             |  |                                                                                 |     |                                                                   |  |                                                                     |  |              |    
|Director     |  |                                                                                 |     |                                                                   |  |                                                                     |  |              |    
|Mike Bramley |  |                                                                                 | 692 |                                                                   |  | 1,044                                                               |  |              | 872
|Tim Clarke   |  |                                                                                 | 910 |                                                                   |  | 1,103                                                               |  |              | 909
|Tony Hughes  |  |                                                                                 | 756 |                                                                   |  | 1,044                                                               |  |              | 872
|Karim Naffah |  |                                                                                 | 834 |                                                                   |  | 1,103                                                               |  |              | 909

| | 
| | 

|(i)  | the mid market share price on the day before the award,
which is used to determine the number of shares to be allocated to each director
|---- | ----------------------------------------------------------------------------------------------------------------------------------------
|(ii) | the share price on June 30, 2005, the date of award,
was 334.25p                                                                        
|    
|    
|    

|                   
|-------------------
|Directors pensions

The following information relates to the pension arrangements
provided for Mike Bramley, Tim Clarke, Tony Hughesand
Karim Naffah under the Defined
Benefit Section of the Mitchells & Butlers Executive Pension Plan (the Plan), and in the cases of Tim Clarke, Tony Hughes and Karim Naffah under the unfunded Executive Top-up Scheme (MABETUS).


The Plan is a funded, Inland Revenue approved, occupational pension scheme with
a final salary section of which these Directors are members. All Plan benefits
are subject to Inland Revenue limits. Where such limitation
is
due to the earnings cap, MABETUS is used to provide pension and death
benefits to the level that would otherwise have applied. The Plans main
features applicable to the Executive Directors are:


|(i)   | a normal pension age of 60;                                                                                                                                  
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|(ii)  | pension accrual of one-thirtieth of final pensionable salary for each year of pensionable service subject to a cap of two-thirds of final pensionable salary;
|     
|(iii) | life assurance cover of four times pensionable salary;                                                                                                       
|     
|(iv)  | pensions payable in the event of ill health; and                                                                                                             
|     
|(v)   | spouses and dependants pensions on death.                                                                                                                  
|     

F-28

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

|Directors pension benefits
|---------------------------



|             |      | Years of
pensionable |          | Age at
October 1, |          | Directors
Contribution |      | Transfer value of
accrued pension |           | Increase in
transfer value
over year less
Directors |  | Increase in
accrued
pension |  | Increase in
accrued
pension |           | Accrued
pension at
October 1, | 
|------------ | ---- | -------------------- | -------- | ----------------- | -------- | ----------------------- | ---- | --------------------------------- | --------- | ---------------------------------------------------- |  | --------------------------- |  | --------------------------- | --------- | ----------------------------- | 
|            
|service      | 2005 | (i)                  | 09.25.04 |                   | 10.01.05 | contributions           | (ii) | (iii)                             | 2005 (iv)
|             |      |                      |          |                   |          |                         |      |                                   |           |                                                      |  |                             |  |                             |           |                               | 
|             |      |                      |          |                   |          | (£)                     |      |                                   |           | (£pa)                                                |  |                             |  | (£)                        
|Director     |      |                      |          |                   |          |                         |      |                                   |           |                                                      |  |                             |  |                             |           |                               | 
|Mike Bramley |      |                      | 25       |                   |          | 54                      |      |                                   | 17,200    |                                                      |  | 2,609,000                   |  |                             | 3,270,000 |                               | 
|Tim Clarke   |      |                      | 15       |                   |          | 48                      |      |                                   | 15,500    |                                                      |  | 2,368,900                   |  |                             | 2,976,600 |                               | 
|Tony Hughes  |      |                      | 10       |                   |          | 57                      |      |                                   | 15,500    |                                                      |  | 1,426,900                   |  |                             | 1,877,300 |                               | 
|Karim Naffah |      |                      | 14       |                   |          | 42                      |      |                                   | 15,500    |                                                      |  | 944,800                     |  |                             | 1,262,700 |                               | 

| | 
| | 

|(i)   | Contributions paid in the year by the Directors under the terms of the plans.                                 
|----- | --------------------------------------------------------------------------------------------------------------
|(ii)  | The absolute increase in accrued pension during the year including any increase for inflation.                
|(iii) | The increase in accrued pension during the year excluding any increase for inflation.                         
|(iv)  | Accrued pension is that which would be paid annually on retirement at 60, based on service to October 1, 2005.
|     

Members of the Plan have the option to pay Additional Voluntary Contributions, subject to Inland Revenue limits, but members of MABETUS are unlikely to benefit by doing so; neither any such
contributions, nor the resulting benefits, are included in the above table.


Transfer values have been calculated in a manner consistent with the Retirement Benefits Schemes Transfer Values (GN11) published by the Institute of Actuaries and the Faculty of
Actuaries.


Additional pension information The following is additional information relating to Directors pensions under the Plan and MABETUS.
 (i)
        Dependants pensionsOn the death of a Director before
      his normal pension age, a widows pension equal to one-third of his own pension is payable; a childs
      pension of one-sixth of his pension is payable for each of a maximum of
      two eligible children.On the death of a Director after
      payment of his pension commences, a widows pension of two-thirds of the Directors full pension entitlement is payable; in addition, a childs
      pension of one-sixth of his full pension entitlement is payable for each
      of a maximum of two eligible children.(ii)
        Early retirement rightsAfter leaving the service of the Company, the member currently has the right to draw his accrued pension at any time after his 50th birthday, subject to a discount for early payment.(iii)
        Pension increasesAll pensions in excess of Guaranteed
      Minimum Pensions are subject to contractual annual increases in line with
      the annual rise in the RPI, subject to a maximum of 5% per annum. In addition,
      it is the Companys present
  aim to pay additional increases based on two-thirds of any rise in the RPI
      above 5% per annum.(iv)
        Other discretionary benefitsOther than the discretionary pension increases mentioned in (iii), there are no discretionary practices which are taken into account in calculating transfer values on leaving service. F-29




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 7  Staff  (Continued)

|Directors share options
|------------------------

|             |  | Ordinary
    shares under option |  | Weighted
average
option price |  | Optionprice |  | Earliestexercisedate |  | Lastexpirydate | 
|------------ |  | -------------------------------- |  | ----------------------------- |  | ----------- |  | -------------------- |  | -------------- | 
|            
|09.25.04     |  | Granted                          |  | Exercised                     |  | 10.01.05   
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Director     |  |                                  |  |                               |  |             |  |                      |  |                | 
|Mike Bramley |  |                                  |  |                               |  |             |  |                      |  |                | 
|A            |  | 97,704                           |  |                               |  | 97,704      |  | 346,277              |  | 272.93p        | 
|B            |  | 346,277                          |  |                               |  |             |  |                      |  |                | 
|C            |  | 562,146                          |  | 214,658                       |  |             |  | 776,804              |  | 260.04p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Total        |  | 1,006,127                        |  | 214,658                       |  | 97,704      |  | 1,123,081            |  | 264.01p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Tim Clarke   |  |                                  |  |                               |  |             |  |                      |  |                | 
|A            |  | 250,245                          |  |                               |  | 244,400     |  | 727,074              |  | 280.76p        | 
|             |  |                                  |  |                               |  | 5,845       |  |                      |  |                | 
|B            |  | 727,074                          |  |                               |  |             |  |                      |  |                | 
|C            |  | 870,003                          |  | 318,920                       |  |             |  | 1,188,923            |  | 258.71p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Total        |  | 1,847,322                        |  | 318,920                       |  | 250,245     |  | 1,915,997            |  | 267.08p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Tony Hughes  |  |                                  |  |                               |  |             |  |                      |  |                | 
|A            |  | 144,189                          |  |                               |  | 144,189     |  | 409,127              |  | 280.07p        | 
|B            |  | 409,127                          |  |                               |  |             |  |                      |  |                | 
|C            |  | 567,619                          |  | 214,658                       |  |             |  | 782,277              |  | 259.40p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Total        |  | 1,120,935                        |  | 214,658                       |  | 144,189     |  | 1,191,404            |  | 266.50p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Karim Naffah |  |                                  |  |                               |  |             |  |                      |  |                | 
|A            |  | 437,302                          |  |                               |  | 2,783       |  | 394,712              |  | 261.19p        | 
|             |  |                                  |  |                               |  | 321,784     |  |                      |  |                | 
|B            |  | 281,977                          |  |                               |  |             |  |                      |  |                | 
|C            |  | 609,287                          |  | 226,924                       |  |             |  | 836,211              |  | 259.43p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 
|Total        |  | 1,328,566                        |  | 226,924                       |  | 324,567     |  | 1,230,923            |  | 260.00p        | 
|             |  |                                  |  |                               |  |             |  |                      |  |                | 

Except as detailed in the PRSP table, no Directors options over Mitchells & Butlers
    plc shares lapsed during the year. No price was paid for the grant of any
    of the options.


Options granted during the year are exercisable
    under the Executive Share Option Plan (the performance condition for which
    is set out on page F-23).


Options granted under the Executive
    Share Option Plan are exercisable between May 27, 2006 and May 23, 2015 subject
    to the achievement of performance conditions. Rolled-over options became exercisable
    on demerger from Six Continents in April 2003 and, if not exercised, will
    lapse on various dates up to October 2012. Rolled-over options ceased to be
    subject to performance conditions on demerger. Sharesave options are exercisable
    between October 1, 2006 and March 31, 2011.


Shares under option at October 1, 2005 are designated as:


| | A | Where the options are exercisable and the market price per share was above the option price at October 1, 2005;     
| | - | --------------------------------------------------------------------------------------------------------------------
|
| | B | Where the options are exercisable, but the market price per share at October 1, 2005 was below the option price; and
|
| | C | Where the options are not yet exercisable and the market price was above the option price on October 1, 2005.       
|

The market price per share on October 1, 2005 was 365.25p and the range during the year to October 1, 2005 was 257.5p to 389.75p per share.


The above table excludes potential awards under
    the Performance Restricted Share Plan, which are shown on page F-28.


F-30

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

|Note 7  Staff  (Continued) |                                  | 
|---------------------------- | -------------------------------- | 
|                             |                                  | 
|                             | Ordinary shares of
      7 1/12p | 
|                             |                                  | 
|                             | 10.01.05                         | 
|                             |                                  | 
|                             | (number)                         | 
|Directors shareholdings     |                                  | 
|Executive Directors          |                                  | 
|Mike Bramley                 | 47,926                           | 
|Tim Clarke                   | 427,978                          | 
|Tony Hughes                  | 62,793                           | 
|Karim Naffah                 | 144,380                          | 
|                             |                                  | 
|Non-Executive Directors      |                                  | 
|Roger Carr                   | 11,067                           | 
|George Fairweather           |                                 | 
|Drummond Hall                | 2,500                            | 
|Sir Tim Lankester            |                                 | 
|Sara Weller                  | 2,200                            | 

The above shareholdings are all beneficial interests
    and include shares held on behalf of the Executive Directors by the Trustee
    of the Companys Share Incentive Plan which are detailed on page F-28.
    None of the Directors has a beneficial interest in the shares of any subsidiary
    or in debenture stocks of the Company or any subsidiary.


At October 1, 2005, the Executive Directors, as potential beneficiaries under the Companys Employee Benefit Trust (the Trust) were technically deemed to be interested in 1,303,068 (2004 3,736,671, 2003
nil) Mitchells & Butlers ordinary shares held in the Trust.


The Companys Register of Directors Interests, which is open to inspection at the registered office, contains full details of Directors shareholdings and share options.


Note 8  Exceptional Items

|                                              | 53 weeks ended  |   | 52 weeks ended     |  
|--------------------------------------------- | --------------- | - | ------------------ | -
|                                              |                 |   |                    |  
|                                              | October 1, 2005 |   | September 25, 2004 |  
|                                              |                 |   |                    |  
|                                              | (£ million)     |  
|Operating
        exceptional items           |                 |   |                    |  
|Licensing
        costs (i)                   | 4               |   |                   |  
|Securitization
        costs (ii)             |                |   | 2                  |  
|Abortive
        acquisition costs (iii)      |                |   |                   |  
|                                              |                 |   |                    |  
|Total
        operating exceptional items     | 4               |   | 2                  |  
|                                              |                 |   |                    |  
|Non-operating
        exceptional items       |                 |   |                    |  
|Profit
        on disposal of fixed assets    | (1              | ) | (2                 | )
|Separation
        costs (iv)                 |                |   |                   |  
|                                              |                 |   |                    |  
|Total
        non-operating exceptional items | (1              | ) | (2                 | )
|                                              |                 |   |                    |  
|Exceptional
        interest charge(v)        |                |   | 2                  |  
|                                              |                 |   |                    |  
|Total
        exceptional items before tax    | 3               |   | 2                  |  
|Tax
        credit on above items             | (3              | ) | (3                 | )
|Exceptional
        tax credit(vi)            |                |   |                   |  
|                                              |                 |   |                    |  
|Total
        exceptional items after tax     |                |   | (1                 | )
|                                              |                 |   |                    |  

|
|

|(i)  | Licensing costs are those incurred
      in relation to obtaining new licenses for the Groups pubs and pub
      restaurants as required by the Licensing Act 2003.                                         
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(ii) | Securitization costs related to operating expenses incurred in relation to the securitization of the Groups
      UK pubs and restaurants business (see Note 19 of Notes to the Financial
      Statements).
|    

|(iii) | Abortive acquisition costs were incurred in
      respect of the Scottish & Newcastle retail business.                                                                                                                                                                                 
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(iv)  | Separation costs related to the costs of separating
      the Groups operations from the hotels and soft drinks businesses of
      Six Continents PLC. The cost includes external advisers fees, bid
      defense costs and various other costs directly related to the separation.
|(v)   | The exceptional interest charge in 2004 arose
      from the acceleration of facility fee amortization in respect of the Groups
      borrowing facilities which were repaid on securitization.                                                                                       
|(vi)  | The exceptional tax credit arose in respect
      of group relief received from the Six Continents group.                                                                                                                                                                              

All exceptional items relate to continuing operations.


Total exceptional items after tax are excluded
    from the calculation of adjusted earnings per share (see Note 12 of Notes
    to the Financial Statements).


F-31

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 8  Exceptional Items  (Continued)



Note 9  Interest on net debt

|                                             |                           | 53 weeks ended |     | 52 weeks ended                 |   
|-------------------------------------------- | ------------------------- | -------------- | --- | ------------------------------ | --
|                                             |                           |                |     |                                |   
|                                             |                           | October 1,2005 |     | September
      25,
      2004 |   
|                                             |                           |                |     |                                |   
|                                             |                           | (£ million)    |    
|Interest
        payable and similar charges |                           |                |     |                                |   
|Securitized
        debt                     | 116                       |                | 100 |                                |  
|Bank
        overdrafts and loans            |                           |                |     |                                |   
|                                            | before exceptional charge |               |     | 10                             |   
|                                            | exceptional charge        |               |     | 2                              |   
|Six
        Continents group                 |                          |                |    |                                | 24
|                                             |                           |                |     |                                |   
|                                             |                           | 116            |     | 112                            |   
|Interest
        receivable (i)              | (11                       | )              | (9  | )                              | (2
|                                             |                           |                |     |                                |   
|Interest
        on net debt                 | 105                       |                | 103 |                                | 63
|                                             |                           |                |     |                                |   
|                                             |                           |                |     |                                |   

|(i) | Interest receivable includes £nil (2004
      £nil, 2003 £1 million) from the Six Continents group.
|--- | ---------------------------------------------------------------------------------------------------

F-32

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS
  (Continued)

Note 10  Tax on Profit on Ordinary Activities

|***Tax charge***                                                   |                                      |   |                                         
|------------------------------------------------------------------ | ------------------------------------ | - | ----------------------------------------
|                                                                   | 53 weeks ended                       |   | 52 weeks ended                          
|                                                                   |                                      |   |                                         
|                                                                   | October 1, 2005                      |   | September
      25,
      2004 restated*
|                                                                   |                                      |   |                                         
|                                                                   | Before
      exceptional
      items |   | Exceptional items                       
|                                                                   |                                      |   |                                         
|                                                                   | (£
      million)                    |  
|                                                                   |                                      |   |                                         
|United
        Kingdom corporation tax at 30% (2004 30%, 2003 30%) |                                      |   |                                         
|Current
        year                                               | 45                                   |   | 1                                       
|Prior
        years                                                | (1                                   | ) | (1                                      
|                                                                   |                                      |   |                                         
|Total
        current tax                                          | 44                                   |   |                                        
|                                                                   |                                      |   |                                         
|Deferred
        tax                                               |                                      |   |                                         
|Origination and
        reversal of timing differences:            |                                      |   |                                         
|Capital
        allowances in excess of depreciation               | 8                                    |   | (3                                      
|Other
        timing differences                                   | (2                                   | ) |                                        
|Prior
        years                                                |                                     |   |                                        
|                                                                   |                                      |   |                                         
|                                                                   | 6                                    |   | (3                                      
|                                                                   |                                      |   |                                         
|Deferred
        tax on defined benefit pension schemes            | 12                                   |   |                                        
|                                                                   |                                      |   |                                         
|Total
        deferred tax                                         | 18                                   |   | (3                                      
|                                                                   |                                      |   |                                         
|                                                                   |                                      |   |                                         
|Tax
        on profit on ordinary activities                       | 62                                   |   | (3                                      
|                                                                   |                                      |   |                                         
|Further
        analyzed as tax relating to:                       |                                      |   |                                         
|Profit
        before exceptional items                            | 62                                   |   |                                        
|Exceptional
        items (see Note 8):                            |                                      |   |                                         
|Operating                                                          |                                     |   | (1                                      
|Non-operating                                                      |                                     |   | (2                                      
|Interest                                                           |                                     |   |                                        
|Tax
        credit                                                 |                                     |   |                                        
|                                                                   |                                      |   |                                         
|                                                                   | 62                                   |   | (3                                      
|                                                                   |                                      |   |                                         
|                                                                   |                                      |   |                                         

|* | Restated on the full adoption of FRS 17 Retirement
      Benefits (see Note 3 of Notes to the Financial Statements).
|- | ----------------------------------------------------------------------------------------------------------------------

F-33

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 10  Tax on Profit on Ordinary Activities  (Continued)

|Tax reconciliations                                                           |  |                      |      |                                         |  |              |                                  |  |      |  
|----------------------------------------------------------------------------- |  | -------------------- | ---- | --------------------------------------- |  | ------------ | -------------------------------- |  | ---- | -
|                                                                              |  | 53 weeks ended       |      | 52 weeks ended                          | 
|                                                                              |  |                      |      |                                         |  |              |                                  |  |      |  
|                                                                              |  | October
      1,2005 |      | September
      25,
      2004restated* |  |              | September27,
      2003restated* | 
|                                                                              |  |                      |      |                                         |  |              |                                  |  |      |  
|                                                                              |  |                      |      |                                         |  | (percentage) |                                  |  |      |  
|Reconciliation
        of United Kingdom standard rate to current tax rate    |  |                      |      |                                         |  |              |                                  |  |      |  
|United
        Kingdom corporation tax at standard rate                       |  |                      | 30.0 |                                         |  | 30.0         |                                  |  | 30.0 |  
|Permanent
        differences                                                 |  |                      | 2.1  |                                         |  | 3.9          |                                  |  | 1.4  |  
|Capital
        allowances in excess of depreciation                          |  |                      | (4.0 | )                                       |  | (7.4         | )                                |  | (5.1 | )
|Pensions
        timing differences                                           |  |                      | (6.3 | )                                       |  | (1.3         | )                                |  | 1.6  |  
|Other
        timing differences                                              |  |                      | 0.9  |                                         |  | 0.1          |                                  |  | (0.2 | )
|Overseas
        losses not utilized                                          |  |                      | 0.2  |                                         |  | 0.3          |                                  |  | 0.7  |  
|Adjustment
        to tax charge in respect of prior years                    |  |                      | (0.1 | )                                       |  | (1.1         | )                                |  |     |  
|Exceptional
        items                                                     |  |                      | 0.1  |                                         |  | 0.6          |                                  |  | (5.1 | )
|                                                                              |  |                      |      |                                         |  |              |                                  |  |      |  
|Effective
        current tax rate                                            |  |                      | 22.9 |                                         |  | 25.1         |                                  |  | 23.3 |  
|                                                                              |  |                      |      |                                         |  |              |                                  |  |      |  
|Reconciliation
        of United Kingdom standard rate to overall rate of tax |  |                      |      |                                         |  |              |                                  |  |      |  
|United
        Kingdom standard rate of corporation tax                       |  |                      | 30.0 |                                         |  | 30.0         |                                  |  | 30.0 |  
|Adjusted
        for:                                                         |  |                      |      |                                         |  |              |                                  |  |      |  
|Permanent
        differences                                                 |  |                      | 2.1  |                                         |  | 3.9          |                                  |  | 1.4  |  
|Overseas
        losses not utilized                                          |  |                      | 0.2  |                                         |  | 0.3          |                                  |  | 0.7  |  
|Adjustment
        to tax charge in respect of prior years                    |  |                      | (0.3 | )                                       |  | (1.8         | )                                |  |     |  
|Other
        differences                                                     |  |                      |     |                                         |  |             |                                  |  | 0.4  |  
|Impact
        of exceptional items                                           |  |                      | (1.3 | )                                       |  | (1.4         | )                                |  | (8.5 | )
|                                                                              |  |                      |      |                                         |  |              |                                  |  |      |  
|Effective
        tax rate                                                    |  |                      | 30.7 |                                         |  | 31.0         |                                  |  | 24.0 |  
|                                                                              |  |                      |      |                                         |  |              |                                  |  |      |  

| 
|-
|*



|Factors which may affect future tax charges
|-------------------------------------------

The key factors which may affect future tax charges include continuing capital expenditure, the availability of accelerated tax depreciation, and changes in tax legislation.


Note 11  Dividends

|                                                                                        |                   |                |                  |     |  |    | 
|--------------------------------------------------------------------------------------- | ----------------- | -------------- | ---------------- | --- |  | -- | 
|                                                                                        | 53 weeks ended    | 52 weeks ended
|                                                                                        |                   |                |                  |     | 
|October 1,2005                                                                          | September 25,2004 |                | September27,2003
|                                                                                        |                   |               
|                                                                                        | (£ million)       |               
|Normal interim dividend paid of 3.20p per share (2004
2.85p per share)                  |                   | 16             |                  | 15  |  |   | 
|Proposed final dividend of 7.55p per share (2004 6.65p
per share, 2003 5.65p per share) |                   | 37             |                  | 34  |  | 29 | 
|                                                                                        |                   |                |                  |     |  |    | 
|Total normal dividend of 10.75p per share (2004 9.50p
per share, 2003 5.65p per share)  |                   | 53             |                  | 49  |  | 29 | 
|Special interim dividend paid in 2004 of 68p per share                                  |                   |               |                  | 501 |  |   | 
|                                                                                        |                   |                |                  |     |  |    | 
|                                                                                        |                   | 53             |                  | 550 |  | 29 | 
|                                                                                        |                   |                |                  |     |  |    | 

The proposed final dividend was paid on February 6, 2006 to shareholders registered on December 9, 2005.


F-34

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note
12  Earnings per Ordinary Share

Basic earnings per ordinary share
    are calculated by dividing the earnings available for shareholders of £133
    million (2004 £118 million restated *, 2003 £117 million restated
    *) by 511 million (2004 559 million, 2003 735 million), being the weighted
    average number of ordinary shares in issue during the year excluding own shares
    held in treasury and by employee share trusts.


Diluted earnings per ordinary
    share are calculated by adjusting basic earnings per ordinary share to reflect
    the notional exercise of the weighted average number of dilutive ordinary
    share options outstanding under the Groups share option schemes. The
    resulting weighted average number of ordinary shares is 520 million (2004
    563 million, 2003 736 million).


In arriving at the weighted average
    number of shares for fiscal 2003, it has been assumed that the ordinary shares
    of Mitchells & Butlers plc in issue on April 15, 2003 following separation
    from Six Continents of 734 million was the number of shares in issue prior
    to separation.


In December 2003, the Company
    combined the payment of a special dividend (see Note 11 of Notes to the Financial
    Statements) with a 12 for 17 consolidation of its share capital. These transactions
    were designed to have the same overall commercial effect, in terms of net
    assets, earnings and number of shares, as a buy-back of shares at fair value.
    Accordingly, earnings per share for prior periods were not restated for the
    share consolidation.


Adjusted earnings per ordinary share are calculated as follows:
 53 weeks ended
    
    52
      weeks endedOctober
      1,2005
    
    September
      25,2004 restated*
    
    September
      27,2003 restated*(pence per ordinary
      share)Basic
        earnings
    
    
    26.0
    
    
    21.1
    
    
    15.9Exceptional
        items, less tax thereon  (Note 8)
    
    
    
    
    
    (0.2
    )
    
    3.3Adjusted
        earnings
    
    
    26.0
    
    
    20.9
    
    
    19.2 *
    Restated on the full adoption of FRS 17 Retirement
      Benefits (see Note 3 of Notes to the Financial Statements). Adjusted earnings per ordinary share are disclosed in order to show performance undistorted by exceptional items and thereby give shareholders a clearer understanding of the trading performance of the Group.
 Note 13  Intangible Fixed Assets Goodwill(£ million)Cost:At September 28, 2003, September 25, 2004 and October 1, 2005
        
        
        15Amortization:At September 28, 2003
        
        
        4Provided
        
        
        1At September 25, 2004 and October 1, 2005
        
        
        5Net book value:At October 1, 2005 and September 25, 2004
        
        
        10 Goodwill is being amortized over its useful economic life, which is considered to be a 20-year period.
 F-35




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 14  Tangible Fixed Assets

|                      |  | Land and
buildings |       | Fixtures,
fittings and
equipment |  | Total       |  
|--------------------- |  | ------------------ | ----- | -------------------------------- |  | ----------- | -
|                      |  |                    |       |                                  |  |             |  
|                      |  |                    |       |                                  |  | (£ million) |  
|Cost or valuation:    |  |                    |       |                                  |  |             |  
|At September 28, 2003 |  |                    | 2,814 |                                  |  | 933         |  
|Additions             |  |                    | 67    |                                  |  | 83          |  
|Disposals             |  |                    | (37   | )                                |  | (70         | )
|Exchange adjustments  |  |                    |      |                                  |  | (1          | )
|                      |  |                    |       |                                  |  |             |  
|At September 25, 2004 |  |                    | 2,844 |                                  |  | 945         |  
|Additions             |  |                    | 76    |                                  |  | 93          |  
|Disposals             |  |                    | (34   | )                                |  | (60         | )
|Reclassification      |  |                    | 5     |                                  |  | (5          | )
|                      |  |                    |       |                                  |  |             |  
|At October 1, 2005    |  |                    | 2,891 |                                  |  | 973         |  
|                      |  |                    |       |                                  |  |             |  
|Depreciation:         |  |                    |       |                                  |  |             |  
|At September 28, 2003 |  |                    | 54    |                                  |  | 171         |  
|Provided              |  |                    | 17    |                                  |  | 90          |  
|On disposals          |  |                    | (3    | )                                |  | (49         | )
|                      |  |                    |       |                                  |  |             |  
|At September 25, 2004 |  |                    | 68    |                                  |  | 212         |  
|Provided              |  |                    | 19    |                                  |  | 97          |  
|On disposals          |  |                    |      |                                  |  | (48         | )
|                      |  |                    |       |                                  |  |             |  
|At October 1, 2005    |  |                    | 87    |                                  |  | 261         |  
|                      |  |                    |       |                                  |  |             |  
|Net book value:       |  |                    |       |                                  |  |             |  
|At October 1, 2005    |  |                    | 2,804 |                                  |  | 712         |  
|                      |  |                    |       |                                  |  |             |  
|At September 25, 2004 |  |                    | 2,776 |                                  |  | 733         |  
|                      |  |                    |       |                                  |  |             |  

Properties

Properties comprising land, buildings and certain fixtures, fittings and equipment, are included above at cost or valuation, less depreciation as required. The transitional rules of FRS 15 have been followed, permitting
the carrying value of properties as at October 1, 1999 to be retained.


In 1996, a group restructuring by Six Continents resulted in the transfer at book value of certain fixed assets to a subsidiary that subsequently became part of the Mitchells & Butlers group. The book value included
the effect of revaluations undertaken prior to 1996. Accordingly, the carrying value of the Groups fixed assets reflects those revaluations in its historic cost, which at October 1, 2005 amounted to £386 million (2004 £392 million).
In addition, the carrying value of the Groups fixed assets reflects the 1999 revaluation (see below) which at October 1, 2005 amounted to £335 million (2004 £339 million).


The most recent valuation of properties reflected in the carrying value of fixed assets was undertaken in 1999 and covered all properties then owned by the Group other than leasehold properties having an unexpired term of
50 years or less.  This valuation was undertaken by external Chartered Surveyors, Chesterton plc, internationally recognized valuers, in accordance with the Appraisal and Valuation Manual of the Royal Institution of Chartered Surveyors. The basis of
valuation was predominantly existing use value and had regard to trading potential.


Historical cost The comparable amounts under the historical cost convention for properties would be:
 October 1,
2005
        
        September 25,
2004(£ million)Cost
        
        
        2,477
        
        
        2,424Depreciation
        
        
        (95
        )
        
        (76
        )Net book value
        
        
        2,382
        
        
        2,348 F-36




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 14  Tangible Fixed Assets  (Continued)

The split of the net book value of land and buildings is as follows:


|                                         |                                          | October 1,        |       | September 25, | 
|---------------------------------------- | ---------------------------------------- | ----------------- | ----- | ------------- | 
|                                         |                                          | 2005              |       | 2004          | 
|                                         |                                          | Cost or
valuation |       | Depreciation  | 
|                                         |                                          |                   |       |               | 
|                                         |                                          | (£ million)       |      
|Freehold                                 |                                          |                   | 2,593 |               | 
|Leasehold:                               |  unexpired term of more than 50 years   |                   |       | 113           | 
|                                         |  unexpired term of 50
    years or less |                   |       | 185           | 
|                                         |                                          |                   |       |               | 
|                                         |                                          |                   | 2,891 |               | 
|                                         |                                          |                   |       |               | 
|Cost or valuation of land and buildings: |                                          |                   |       |               | 
|1999 valuation                           |                                          |                   | 1,389 |               | 
|Cost                                     |                                          |                   | 1,502 |               | 
|                                         |                                          |                   |       |               | 
|                                         |                                          |                   | 2,891 |               | 
|                                         |                                          |                   |       |               | 

Note 15  Stocks

|                      |  | October 1,
2005 |    | September 25,
2004 | 
|--------------------- |  | --------------- | -- | ------------------ | 
|                      |  |                 |    |                   
|(£ million)          
|Work in progress      |  |                 | 17 |                    | 
|Goods held for resale |  |                 | 22 |                    | 
|                      |  |                 |    |                    | 
|                      |  |                 | 39 |                    | 
|                      |  |                 |    |                    | 

The replacement cost of stocks approximates to the value stated above. Work in progress is in respect of property developments.


Note 16  Debtors

|                  |  | October 1,
  2005 |    | September 25,
  2004
  restated* | 
|----------------- |  | ----------------- | -- | -------------------------------- | 
|                  |  |                   |    |                                 
|(£ million)      
|Trade debtors     |  |                   | 2  |                                  | 
|Other debtors (i) |  |                   | 38 |                                  | 
|Prepayments       |  |                   | 36 |                                  | 
|                  |  |                   |    |                                  | 
|                  |  |                   | 76 |                                  | 
|                  |  |                   |    |                                  | 

|   
|---
|*  
|   
|   
|   
|(i)

Note 17  Creditors: amounts falling due
within one year

|                                   |  |                 |     |                    |  |     | 
|---------------------------------- |  | --------------- | --- | ------------------ |  | --- | 
|                                   |  | October 1,
2005 |     | September 25,
2004 | 
|                                   |  |                 |     |                   
|(£ million)                       
|Borrowings  (Note 19)             |  |                 | 39  |                    |  | 35  | 
|Trade creditors                    |  |                 | 67  |                    |  | 41  | 
|Corporate taxation                 |  |                 | 60  |                    |  | 59  | 
|Other taxation and social security |  |                 | 42  |                    |  | 42  | 
|Accrued charges                    |  |                 | 78  |                    |  | 90  | 
|Proposed dividend                  |  |                 | 37  |                    |  | 34  | 
|Other creditors                    |  |                 | 27  |                    |  | 25  | 
|                                   |  |                 |     |                    |  |     | 
|                                   |  |                 | 350 |                    |  | 326 | 
|                                   |  |                 |     |                    |  |     | 

Note 18  Creditors: amounts falling due after one year

|                       |  | October 1,
2005 |       | September 25,
    2004 | 
|---------------------- |  | --------------- | ----- | ---------------------- | 
|                       |  |                 |       |                       
|(£ million)           
|Borrowings  (Note 19) |  |                 | 1,786 |                        | 
|                       |  |                 |       |                        | 

F-37

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 19  Borrowings

|                     |  | October 1, 2005 |    | September 25, 2004 | 
|-------------------- |  | --------------- | -- | ------------------ | 
|                     |  |                
|Within one
year      |  | After one
year  |    | Total              | 
|                     |  |                 |    |                    | 
|(£ million)          | 
|Securitized debt (i) |  |                 | 36 |                    | 
|Loan notes (ii)      |  |                 | 2  |                    | 
|Finance leases       |  |                 | 1  |                    | 
|                     |  |                 |    |                    | 
|Total borrowings     |  |                 | 39 |                    | 
|                     |  |                 |    |                    | 

|    
|----
|(i) 
|    
|(ii)
|    



|                                 |  | October 1,
2005 |       | September 25,
2004 | 
|-------------------------------- |  | --------------- | ----- | ------------------ | 
|                                 |  |                 |       |                    | 
|(£ million)                      | 
|Analysis by year of repayment:   |  |                 |       |                    | 
|Due within one year or on demand |  |                 | 39    |                    | 
|Due between one and two years    |  |                 | 38    |                    | 
|Due between two and five years   |  |                 | 128   |                    | 
|Due after five years             |  |                 | 1,620 |                    | 
|                                 |  |                 |       |                    | 
|Total borrowings                 |  |                 | 1,825 |                    | 
|                                 |  |                 |       |                    | 

|                
|----------------
|Securitized debt

On November 13, 2003, a
    group company, Mitchells & Butlers Finance plc, issued £1,900 million of secured loan notes in connection with the securitization of the majority of the Groups UK pubs and restaurants
  business owned by Mitchells & Butlers Retail Limited. The funds raised were mainly used to repay existing bank borrowings of £1,243 million, pay issue costs of £23 million and return £501
  million to shareholders by way of a special dividend (see Note 11 of Notes
to the Financial Statements).


The loan notes consist of six tranches as follows:


|Tranche |  | Initial
principal
borrowed |       | Interest |  | Principal repayment period |  | Principal
outstanding
at October 1,
2005 |                              | Expected
    WAL | 
|------- |  | -------------------------- | ----- | -------- |  | -------------------------- |  | ---------------------------------------- | ---------------------------- | ---------------- | 
|        |  |                            |       |          |  |                            |  |                                          |                              |                  | 
|        |  | (£ million)                |       |          |  |                            |  |                                          |                              | (£ million)      | 
|A1      |  |                            | 200   |          |  | Floating                   |  |                                          | By installments 2011 to 2028 |                  | 
|A2      |  |                            | 550   |          |  | 5.574%                     |  |                                          | By installments 2003 to 2028 |                  | 
|A3      |  |                            | 250   |          |  | Floating                   |  |                                          | By installments 2011 to 2028 |                  | 
|B1      |  |                            | 350   |          |  | 5.965%                     |  |                                          | By installments 2003 to 2023 |                  | 
|B2      |  |                            | 350   |          |  | 6.013%                     |  |                                          | By installments 2015 to 2028 |                  | 
|C       |  |                            | 200   |          |  | 6.469%                     |  |                                          | By installments 2029 to 2030 |                  | 
|        |  |                            |       |          |  |                            |  |                                          |                              |                  | 
|        |  |                            | 1,900 |          |  |                            |  |                                          |                              |                  | 
|        |  |                            |       |          |  |                            |  |                                          |                              |                  | 

The expected remaining WAL (weighted average life) is based on the amortization profile of the individual note tranches and assumes refinancing of the A1 and A3 notes on the margin step-up dates below.


The notes are secured on substantially all of the Groups property and future
income streams therefrom.


Interest on the Class A1 notes is payable at three month LIBOR plus a margin
of 0.45%, stepping up to LIBOR plus 0.90% in December 2010. These notes are fully
hedged using interest rate swaps which fix the interest rate
payable.


The Class A3 notes were issued in principal amount of $418.75 million, with
interest payable at three month US dollar LIBOR plus a margin of 0.45%, stepping
up to US dollar LIBOR plus 0.90% in December 2010. These notes are fully hedged
using currency swaps and interest rate swaps, whereby all principal and interest
liabilities are swapped into sterling providing an initial principal
of £250
million and fixed interest payable.


F-38

---



Back to Contents

MITCHELLS & BUTLERS
PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

The overall cash interest rate payable on the loan notes is 6% after taking account of interest rate hedging and the cost of the provision of a financial guarantee provided by Ambac in respect of the Class A notes.


The carrying value of the loan notes in the Group balance sheet at October 1, 2005 is analyzed as
follows:


|                                            |  | (£ million) |      
|------------------------------------------- |  | ----------- | -----
|Principal outstanding at September 26, 2004 |  |             | 1,872
|Principal repaid during the period          |  |             | (35  
|                                            |  |             |      
|Principal outstanding at October 1, 2005    |  |             | 1,837
|Unamortized deferred issue costs            |  |             | (20  
|Accrued interest                            |  |             | 4    
|                                            |  |             |      
|Carrying value at October 1, 2005           |  |             | 1,821
|                                            |  |             |      

The securitization is governed by various covenants, warranties and events of default, many of which apply to Mitchells & Butlers Retail Limited (MBRL), the Groups main operating subsidiary. In
particular, MBRL must maintain a minimum free cash flow to debt service coverage ratio of no less than 1.10:1 as measured on any financial quarter date, in respect of the most recent relevant period or the most recent relevant year. MBRL must also
maintain an aggregate consolidated net worth of at least £300,000,000 at the end of each year. MBRL is restricted in its ability to: (a) make any payments or other disposal of cash or other funds to another Group entity (including payment of
dividends, payment of interest, distributions, repayment of loans, capital contributions etc.), except for any payment specifically permitted (such as payment to the intra group services companies) unless (i) all payments due and payable under the
working capital facility have been made, (ii) no event of default has occurred and is continuing or would occur as a result of the making of such payment, and (iii) certain minimum free cash flow to debt service ratios (at least 1.3:1) and EBITDA to
debt service payments ratios (at least 1.7:1) are met; (b) sell, lease, transfer or dispose of any secured properties without the consent of the security trustee, and proceeds from these permitted disposals shall be deposited into a secured account
with restrictions on the use of such funds (disposal of assets other than secured properties are also subject to certain conditions); (c) acquire or substitute any business over which security is granted, or would be granted; (d) incur more than
£7,500,000 in permitted encumbrances or more than £7,500,000 in permitted indebtedness.  The Company is required to incur or reserve for each fiscal year a required maintenance amount equal to 6.4% of the actual aggregate turnover in
respect of the preceding fiscal year of the secured properties.


No events of default have occurred.


At October 1, 2005, MBRL had short-term deposits and cash of £119 million (2004 £98 million). Of this amount, £86 million (2004 £74 million) was available to make permitted payments to other companies
in the Mitchells & Butlers group, including £24 million (2004 £22 million) of dividends, £17 million (2004 £20 million) was held for general working capital purposes within MBRL and £16 million (2004 £4 million) of
disposal proceeds were on deposit in a secured account.


At October 1, 2005, MBRL had net assets of £1,407
million (2004 £1,334 million restated) (after the elimination of inter-company
balances excluding Term Advances) and distributable reserves of £748 million

(2004 £709 million). Permitted dividends payments of £24 million (2004 £22
million) were allowed under the terms of the securitization covenants, leaving
restricted net assets of £1,383 million (2004 £1,312 million restated)

and restricted distributable reserves of £724 million (2004 £687 million)
in MBRL at October 1, 2005. Access to these reserves would require the consent
of the security trustee and cannot be guaranteed. The 2004 restatements relate
to the
reclassification of inter-company balances of £21 million.


F-39

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

As the restricted net assets of MBRL represent more than 25% of the consolidated net assets of the Group, parent company information is presented on Schedule I on pages SH1-1 to SH1-4.


Facilities committed by banks

|                              |  | October 1,
    2005 |  | September 25,
      2004 | 
|----------------------------- |  | ------------------- |  | ------------------------ | 
|                              |  |                    
|                              |  | (£ million)         | 
|Utilized                      |  |                    |  |                         | 
|Unutilized                    |  | 280                 |  | 280                      | 
|                              |  |                     |  |                          | 
|                              |  | 280                 |  | 280                      | 
|                              |  |                     |  |                          | 
|Unutilized facilities expire: |  |                     |  |                          | 
|Within one year (i)           |  | 220                 |  | 220                      | 
|Between two and five years    |  | 60                  |  | 60                       | 
|                              |  |                     |  |                         
|                              |  | 280                 |  | 280                      | 
|                              |  |                     |  |                          | 

|   
|---
|(i)
|   

Note 20  Financial Instruments

Treasury management

The financial risks faced by the Group are identified and managed by a central Treasury department. The activities of the Treasury function are carried out in accordance with Board approved policies and are subject to
regular audit. The department does not operate as a profit center.


On November 13, 2003, the Group completed a securitization of the majority of its pubs, raising a total of £1.9 billion through the issue of secured loan notes. The securitization provides the Group with long-term
financing at a cash interest cost of 6% pre-tax, including the interest rate and currency swap agreements put in place to hedge the floating rate tranches.  The Treasury department is responsible for ensuring that robust procedures are in place for
the Company to comply with the various covenants attached to the securitization.


The Treasury department is also responsible for identifying and managing foreign exchange exposures. Whilst the Group has limited operations in Germany, the impact of movements in the Euro exchange rate do not have a
material effect on the Groups results. Consequently the only foreign exchange hedging in place relates to the US dollar denominated secured loan notes that were issued in connection with the securitization.


Permitted interest rate hedging methods include the use of fixed rate debt, interest rate swaps, options (such as caps) and forward rate agreements.  The only hedging arrangements in place are interest rate and currency
swaps taken out at the time of the securitization to fix the interest cost relating to floating rate loan notes.  As required under the terms of the securitization, these hedging arrangements mean that the interest payable in respect of the
securitized debt is totally fixed.


Credit risk on treasury transactions is minimized by operating a policy for the investment of surplus funds that generally restricts the bank counterparties to those with an A credit rating or better, or those providing
adequate security. Limits are also set with individual counterparties. Most of the Groups surplus funds are held with financial institutions in the UK.


Principal hedging instruments

In order to manage interest rate risk, the Group has entered into interest rate and currency swap agreements that fix the interest payable on the floating rate tranches of the securitized debt (see Note 19 of Notes to the
Financial Statements). At October 1, 2005, these agreements were for a notional principal amount of £450 million (2004 £450 million) and are contracted until 2028.


F-40

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 20  Financial Instruments  (Continued)

Currency and interest rate profile of financial assets and liabilities

After taking into account the interest rate and currency swap agreements entered into by the Group, the currency and interest profile of the Groups financial assets and liabilities at the balance sheet date
was:


|                 |  | October 1, 2005 |  | September 25, 2004              | 
|---------------- |  | --------------- |  | ------------------------------- | 
|                 |  |                 |  |                                 | 
|Financial assets |  | Total           |  | Non-
      interest
    bearing | 
|                 |  |                 |  |                                 | 
|                 |  | (£ million)     | 
|Sterling         |  | 194             |  | 3                               | 
|Euro             |  | 6               |  |                                | 
|                 |  |                 |  |                                 | 
|                 |  | 200             |  | 3                               | 
|                 |  |                 |  |                                 | 

Financial assets comprise cash of £129 million (2004 £81 million) and current asset investments of £71 million (2004 £144 million).


|                          |  | October 1, 2005                            | 
|------------------------- |  | ------------------------------------------ | 
|                          |  |                                            | 
|Financial
    liabilities |  | Total      before
      currency
    swaps | 
|                          |  |                                            | 
|                          |  | (£
    million)                            | 
|Sterling                  |  | 1,581                                      | 
|US dollar                 |  | 248                                        | 
|                          |  |                                            | 
|                          |  | 1,829                                      | 
|                          |  |                                            | 

|                          |  | September 25, 2004                         | 
|------------------------- |  | ------------------------------------------ | 
|                          |  |                                            | 
|Financial
    liabilities |  | Total      before
      currency
    swaps | 
|                          |  |                                            | 
|                          |  | (£ million)                                | 
|Sterling                  |  | 1,611                                      | 
|US dollar                 |  | 248                                        | 
|                          |  |                                            | 
|                          |  | 1,859                                      | 
|                          |  |                                            | 

Financial liabilities comprise borrowings of £1,825
    million (2004 £1,857 million) as disclosed in Note 19 of Notes to the
    Financial Statements and provisions for property leases of £4 million
    (2004 £2 million).


Floating rate financial assets and
    liabilities bear interest at market rates based on LIBOR.


Currency risk

After taking into account the above hedging arrangements,
    the Group does not have a material profit and loss account exposure to foreign
    exchange gains or losses on monetary assets and liabilities. In addition,
    the Group is predominantly UK based and therefore does not have a significant
    currency exposure from its operations. Under the provisions of SSAP 20, any
    foreign exchange gains or losses arising from the translation of overseas
    net assets are recognized in the statement of total recognized group gains
    and losses.


F-41

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS
  (Continued)

Note 20  Financial Instruments
   (Continued)

Fair values of financial assets
      and liabilities

|                                                                        | October 1, 2005 |   | September 25, 2004 |  
|----------------------------------------------------------------------- | --------------- | - | ------------------ | -
|                                                                        |                 |   |                    |  
|                                                                        | Net bookvalue   |   | Fair value         |  
|                                                                        |                 |   |                    |  
|                                                                        | (£ million)     |  
|Cash                                                                    | 129             |   | 129                |  
|Current asset investments                                               | 71              |   | 71                 |  
|Securitized
          debt (excluding interest rate and currency swaps) | (1,808          | ) | (1,952             | )
|Loan notes                                                              | (2              | ) | (2                 | )
|Finance leases                                                          | (2              | ) | (2                 | )
|Provisions for property leases                                          | (4              | ) | (4                 | )
|Interest rate
      swaps                                               |                |   | (31                | )
|Currency swaps                                                          | (13             | ) | (17                | )
|                                                                        |                 |   |                    |  
|                                                                        | (1,629          | ) | (1,808             | )
|                                                                        |                 |   |                    |  

The various tranches of the securitized debt have been valued using period end mid-market quoted prices. The fair value of interest rate and currency swaps is the estimated amount which the Group could expect to pay or
receive on the termination of the agreements.  These amounts are based on quotations from counterparties and take into consideration interest and exchange rates prevailing at the balance sheet date. Other financial assets and liabilities are either
short-term in nature or book values approximate to fair values.


Gains and losses on hedges

Gains and losses on derivative instruments used for hedging are not recognized in the financial statements until the hedged exposure is itself recognized. Unrecognized gains and losses on hedging instruments are as
follows:


|                                                                                | Gains      |  | Losses |   | Net |  
|------------------------------------------------------------------------------- | ---------- |  | ------ | - | --- | -
|                                                                                |            |  |        |   |     |  
|                                                                                | £ million) | 
|Unrecognized at September 28, 2003                                              |           |  |       |   |    |  
|Arising in the
      year but not recognized                                    |           |  | (10    | ) | (10 | )
|                                                                                |            |  |        |   |     |  
|Unrecognized at September 25, 2004                                              |           |  | (10    | ) | (10 | )
|Arising
          in previous years that were recognized in the
           year |           |  | 1      |   | 1   |  
|                                                                                |            |  |        |   |     |  
|Arising
    in previous years that were not recognized in the year              |           |  | (9     | ) | (9  | )
|Arising in the
      year but not recognized                                    |           |  | (26    | ) | (26 | )
|                                                                                |            |  |        |   |     |  
|Unrecognized at October 1, 2005                                                 |           |  | (35    | ) | (35 | )
|                                                                                |            |  |        |   |     |  
|Analyzed as:                                                                    |            |  |        |   |     |  
|Expected to be
      recognized in 2005/06                                      |           |  | (6     | ) | (6  | )
|Expected to be recognized thereafter                                            |           |  | (29    | ) | (29 | )
|                                                                                |            |  |        |   |     |  
|                                                                                |           |  | (35    | ) | (35 | )
|                                                                                |            |  |        |   |     |  

F-42

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 21 – Deferred taxation

|                                              | (£ million) |  
|--------------------------------------------- | ----------- | -
|At September 27, 2003, as previously reported | 203         |  
|Adoption of FRS 17                            | (29         | )
|                                              |             |  
|As restated*                                  | 174         |  
|Profit and loss account*                      | 8           |  
|                                              |             |  
|At September 25, 2004*                        | 182         |  
|Profit and loss account                       | 3           |  
|                                              |             |  
|At October 1, 2005                            | 185         |  
|                                              |             |  

Analyzed as tax on timing differences related to:


|               | October 1,
      2005 |   | September 25, 2004
  restated* |  
|-------------- | --------------------- | - | ------------------------------ | -
|               |                       |   |                                |  
|               | (£ million)           |  
|Fixed assets   | 141                   |   | 135                            |  
|Deferred gains | 49                    |   | 49                             |  
|Other          | (5                    | ) | (2                             | )
|               |                       |   |                                |  
|               | 185                   |   | 182                            |  
|               |                       |   |                                |  

| | 
| | 

|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).
|- | --------------------------------------------------------------------------------------------------------------------

Tax losses with a value of £6 million (2004 £6 million), have not been recognized as their use is uncertain or not currently anticipated. These tax losses do not have an expiry date.


No provision has been made for deferred tax on the sale of properties at their revalued amounts or where gains have been or are expected to be deferred against expenditure on replacement assets for an indefinite period
until the sale of the replacement assets.  The total amount unprovided is estimated at £214 million (2004 £230 million restated). It is not anticipated that any such tax will be payable in the foreseeable future.


The Company had a deferred tax asset of £2 million at October 1, 2005 (2004 £1 million as reclassified) relating to other timing differences.


Note 22  Other Provisions for Liabilities
and Charges

|                      | Other          |  
|--------------------- | -------------- | -
|                      |                |  
|                      | Reorganization |  
|                     
|                      |                |  
|                      | (£ million)    |  
|At September 28, 2003 | 1              |  
|Utilized              | (1             | )
|                      |                |  
|At September 25, 2004 | —              |  
|Additions             | —              |  
|                      |                |  
|At October 1, 2005    | —              |  
|                      |                |  

| | 
| | 
| | 

|(i) | Onerous property leases extend for periods
    of up to nine years.
|--- | -------------------------------------------------------------------

F-43

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS
(Continued)

Note 23  Share Options

|                                  | Rolled over
options |   | Post
separation
options |   | Total |  
|--------------------------------- | ------------------- | - | ----------------------- | - | ----- | -
|                                 
|                                  |                     |   |                         |   |       |  
|                                  | (millions)          |  
|Rolled over options on separation | 26.5                |   | —                       |   | 26.5  |  
|Granted since separation          | —                   |   | 10.7                    |   | 10.7  |  
|Exercised                         | (1.8                | ) | —                       |   | (1.8  | )
|Lapsed                            | (0.6                | ) | —                       |   | (0.6  | )
|                                  |                     |   |                         |   |       |  
|At September 27, 2003             | 24.1                |   | 10.7                    |   | 34.8  |  
|Granted                           | 0.8                 |   | 7.1                     |   | 7.9   |  
|Exercised                         | (4.6                | ) | —                       |   | (4.6  | )
|Lapsed                            | (5.1                | ) | (1.0                    | ) | (6.1  | )
|                                  |                     |   |                         |   |       |  
|At September 25, 2004             | 15.2                |   | 16.8                    |   | 32.0  |  
|Granted                           | —                   |   | 5.9                     |   | 5.9   |  
|Exercised                         | (6.4                | ) | —                       |   | (6.4  | )
|Lapsed                            | (1.6                | ) | (2.1                    | ) | (3.7  | )
|                                  |                     |   |                         |   |       |  
|At October 1, 2005                | 7.2                 |   | 20.6                    |   | 27.8  |  
|                                  |                     |   |                         |   |       |  

Rolled-over options were originally granted under the Six Continents Executive Share Option Schemes. On separation from Six Continents on April 15, 2003, employees and certain former employees of the Six Continents group
had the opportunity to roll over their options over Six Continents PLC shares into options over Mitchells & Butlers plc shares. The number of options exchanged and the exercise prices were calculated in accordance with a formula based on the
closing Six Continents and opening Mitchells & Butlers share prices, both averaged over a five-day period.  Exercise prices in respect of outstanding options range from £2.14 to £3.64 and options are exercisable until May
28, 2012. These options are not subject to a future performance condition. Since separation, the Company has granted options
  under the following share schemes:


|(i)   | Sharesave  an Inland Revenue approved savings scheme open to all employees, whereby the proceeds from the savings contract, of either three or five years duration, are used to purchase shares under options granted at
    the commencement of the savings contract, at a discount of 20% to the market value of the shares at the date of grant. The options may be exercised up to six months after the maturity of the savings contract. Outstanding options over 4.9 million
    shares were in existence at October 1, 2005 (2004 4.7 million); 1.1 million at an exercise price of £2.59, 1.2 million (2004 1.5 million) at an exercise price of £2.09 and 2.6 million (2004 3.2 million) at an exercise price of
£1.69.                                                    
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(ii)  | Executive Share Option Plan  a discretionary share plan whereby options may be granted to senior management at the prevailing market price at the date of grant. Options generally become exercisable between three and
  ten years after the date of grant, subject to achievement of a performance condition.
  Details of the performance conditions attached to these options are contained
  in Note 7 of Notes to the Financial Statements. Outstanding options over 11.3
  million shares were in existence at October 1, 2005 (2004 8.0 million); 3.4 million
  at an exercise price of £3.26, 0.1 million at an exercise
  price of £3.31, 3.8 million (2004 3.9 million) at an exercise price of £2.53
  and 4.0 million (2004 4.1 million) at an exercise price of £2.19.
|     
|     
|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|(iii) | Performance Restricted Share
          Plan  a discretionary share plan whereby options are granted to a small group of the Companys most senior executives. Options are exercisable within two years after the completion of
  a three-year performance period. Details of the performance conditions attached to these options are contained in Note 7 of Notes to the Financial Statements. Outstanding options over 4.4 million shares were in existence at October 1, 2005 (2004 4.1
  million); all options have an exercise price of £1 per employee per share
  plan.                                                                                                                                                                                                      
|     

F-44

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 23  Share Options  (Continued)

Movements in the options outstanding under these schemes for the period from separation to September 27, 2003 are as follows:


|                                  | Options
  outstanding
  at April 15,
  2003 |  | Granted |     | Exercised   |   | Lapsed or
  canceled |   | Options
      outstanding at
      September 27,
      2003 |     | Fair
  value
  of options
  granted
  during the
  period | 
|--------------------------------- | ------------------------------------------- |  | ------- | --- | ----------- | - | -------------------- | - | ----------------------------------------------------------- | --- | --------------------------------------------------------- | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Rolled over options               |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|No. of shares (000)               | 26,479                                      |  | —       |     | (1,762      | ) | (596                 | ) | 24,121                                                      |     |                                                           | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Range of option prices (pence)    | 181.4364.5                                 |  | —       |     | 181.4214.5 |   | 214.5364.5          |   | 181.4364.5                                                 |     | —                                                         | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Sharesave                         |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|No. of shares (000)               | —                                           |  | 3,995   |     | —           |   | (23                  | ) | 3,972                                                       |     |                                                           | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Range of option prices (pence)    | —                                           |  | 169.0   |     | —           |   | 169.0                |   | 169.0                                                       |     | 68.4                                                      | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Executive Share Option Plan       |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|No. of shares (000)               | —                                           |  | 4,264   |     | —           |   | (33                  | ) | 4,231                                                       |     |                                                           | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Range of option prices (pence)    | —                                           |  | 219.0   |     | —           |   | 219.0                |   | 219.0                                                       |     | 25.7                                                      | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Performance Restricted Share Plan |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|No. of shares (000)               | —                                           |  | 2,502   |     | —           |   | —                    |   | 2,502                                                       |     |                                                           | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 
|Range of option prices (pence)    | —                                           |  | —       | (i) | —           |   | —                    |   | —                                                           | (i) | 202.0                                                     | 
|                                  |                                             |  |         |     |             |   |                      |   |                                                             |     |                                                           | 

| | 
| | 
| | 

|(i) | The exercise price relating to the Performance Restricted Share Plan is £1 per participating employee per share plan.
|--- | ---------------------------------------------------------------------------------------------------------------------
|   

Movements in the options outstanding under these schemes for the 52 weeks ended September 25, 2004 are as follows:


|                                  | Options
        outstanding at
        September 27,
    2003 |     | Granted |     | Rolled
        over |  | Exercised   |   | Lapsed or
        canceled |   | Options
        outstanding at
    September 25,
    2004 |     | Fair value
        of options
        granted during
        the period | 
|--------------------------------- | ------------------------------------------------------------- | --- | ------- | --- | ------------------- |  | ----------- | - | -------------------------- | - | --------------------------------------------------------- | --- | ----------------------------------------------------------------------- | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Rolled over options               |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|No. of shares (000)               | 24,121                                                        |     | —       |     | 774                 |  | (4,571      | ) | (5,099                     | ) | 15,225                                                    |     |                                                                         | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Range of option prices (pence)    | 181.4364.5                                                   |     | —       |     | 186.8364.5         |  | 181.4268.0 |   | 181.4364.5                |   | 181.4364.5                                               |     | —                                                                       | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Sharesave                         |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|No. of shares (000)               | 3,972                                                         |     | 1,569   |     | —                   |  | (4          | ) | (816                       | ) | 4,721                                                     |     |                                                                         | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Range of option prices (pence)    | 169.0                                                         |     | 209.0   |     | —                   |  | 169.0       |   | 169.0209.0                |   | 169.0209.0                                               |     | 87.4                                                                    | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Executive Share Option Plan       |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|No. of shares (000)               | 4,231                                                         |     | 3,901   |     | —                   |  | —           |   | (201                       | ) | 7,931                                                     |     |                                                                         | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Range of option prices (pence)    | 219.0                                                         |     | 252.5   |     | —                   |  | —           |   | 219.0252.5                |   | 219.0252.5                                               |     | 48.9                                                                    | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Performance Restricted Share Plan |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|No. of shares (000)               | 2,502                                                         |     | 1,610   |     | —                   |  | —           |   | —                          |   | 4,112                                                     |     |                                                                         | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 
|Range of option prices (pence)    | —                                                             | (i) | —       | (i) | —                   |  | —           |   | —                          |   | —                                                         | (i) | 206.8                                                                   | 
|                                  |                                                               |     |         |     |                     |  |             |   |                            |   |                                                           |     |                                                                         | 

| | 
| | 
| | 

|i) | The exercise price relating to the Performance Restricted Share Plan is £1 per participating employee per share plan.
|-- | ---------------------------------------------------------------------------------------------------------------------
|  

F-45

---



Back to Contents

MITCHELLS & BUTLERS
        PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 23  Share Options  (Continued)

The weighted average fair values of options granted in the period from separation to September 25, 2004 were estimated using the Black  Scholes option pricing model with the following assumptions: dividend yield of 2004 4%
(2003 4%), expected volatility of 2004 31% (2003 23%), risk free interest rate of 2004 5% (2003 4%) and expected life of 2004 31 months, 36 months or 60 months, (2003 18 months, 30 months, 36 months or 60 months).


Movements in the options outstanding under these schemes for the 53 weeks ended October 1, 2005 are as follows:


|                                  | Options
      outstanding at
      September 25, 2004 |               | Granted |  | Exercised     |     | Lapsed or
canceled |               | Options
outstanding
at October 1,2005 |  | Fair value of
options
granted
during the
period |    
|--------------------------------- | ----------------------------------------------------- | ------------- | ------- |  | ------------- | --- | ------------------ | ------------- | ------------------------------------- |  | ----------------------------------------------- | ---
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Rolled over options               |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|No. of shares (000)               |                                                       | 15,225        |         |  |              |     |                    | (6,366        | )                                     |  | (1,637                                          | )  
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Range of option prices (pence)    |                                                       | 181.4  364.5 |         |  |              |     |                    | 181.4  364.5 |                                       |  | 214.5  364.5                                   |    
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Sharesave                         |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|No. of shares (000)               |                                                       | 4,721         |         |  | 1,163         |     |                    | (22           | )                                     |  | (930                                            | )  
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Range of option prices (pence)    |                                                       | 169.0  209.0 |         |  | 258.5         |     |                    | 169.0  209.0 |                                       |  | 169.0  258.5                                   |    
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Executive Share Option Plan       |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|No. of shares (000)               |                                                       | 7,931         |         |  | 3,460         |     |                    |              |                                       |  | (69                                             | )  
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Range of option prices (pence)    |                                                       | 219.0  252.5 |         |  | 326.1  330.5 |     |                    |              |                                       |  | 219.0  252.5                                   |    
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Performance Restricted Share Plan |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|No. of shares (000)               |                                                       | 4,112         |         |  | 1,285         |     |                    |              |                                       |  | (1,025                                          | )  
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    
|Range of option prices (pence)    |                                                       |              | (i)     |  |              | (i) |                    |              |                                       |  |                                                | (i)
|                                  |                                                       |               |         |  |               |     |                    |               |                                       |  |                                                 |    

|   
|---
|(i)

In fiscal 2005, the Company refined the methods
    used to estimate the fair value of options by using separate option pricing
    models and assumptions for each plan. The fair values of options granted during
    the 53 weeks ended October 1, 2005 were estimated using the Binomial option
    pricing model for the Executive Share Option Plan, a combination of the Binomial
    option pricing model and Monte Carlo simulations for the Performance Restricted
    Share Plan and the Black  Scholes option pricing model for the sharesave
    schemes.


The weighted average fair values of options granted
were estimated with the following weighted average assumptions: dividend yield
3%, expected volatility of 31%, risk free interest rate of 4% and expected life
of 36 (Performance Restricted Share Plan), 42 (Sharesave 3 year scheme), 66 (Sharesave
5 year scheme) or 78 (Executive Share Option Plan) months.


F-46




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 23  Share Options  (Continued)

Movements in the options outstanding under the option schemes for the period from separation to September 27, 2003 are as follows:


|                                          | Options
outstanding at
April 15, 2003 |        | Granted |  | Exercised |     | Lapsed or
      canceled |        | Options
outstanding at
September 27, 2003 |  | Options
exercisable at
September 27, 2003 |  
|----------------------------------------- | ------------------------------------- | ------ | ------- |  | --------- | --- | ------------------------ | ------ | ----------------------------------------- |  | ----------------------------------------- | -
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Rolled over options                       |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|No. of shares (000)                       |                                       | 26,479 |         |  |          |     |                          | (1,762 | )                                         |  | (596                                      | )
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Weighted
    average option price (pence) |                                       | 257.8  |         |  |          |     |                          | 214.4  |                                           |  | 294.6                                     |  
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Sharesave                                 |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|No. of shares (000)                       |                                       |       |         |  | 3,995     |     |                          |       |                                           |  | (23                                       | )
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Weighted average option price (pence)     |                                       |       |         |  | 169.0     |     |                          |       |                                           |  | 169.0                                     |  
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Executive Share Option Plan               |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|No. of shares (000)                       |                                       |       |         |  | 4,264     |     |                          |       |                                           |  | (33                                       | )
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Weighted
    average option price (pence) |                                       |       |         |  | 219.0     |     |                          |       |                                           |  | 219.0                                     |  
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Performance Restricted Share Plan         |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|No. of shares (000)                       |                                       |       |         |  | 2,502     |     |                          |       |                                           |  |                                          |  
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  
|Weighted
    average option price (pence) |                                       |       |         |  |          | (i) |                          |       |                                           |  |                                          |  
|                                          |                                       |        |         |  |           |     |                          |        |                                           |  |                                           |  

Movements in the options outstanding under the option schemes for the 52 weeks ended September 25, 2004 are as follows:


|                                          | Options
    outstanding at
    September 27, 2003 |        | Granted |  | Exercised |      | Lapsed
        or
      canceled |        | Options
    outstanding at
    September 25, 2004 |  | Options
    exercisable at
    September 25, 2004 |  
|----------------------------------------- | ------------------------------------------------- | ------ | ------- |  | --------- | ---- | -------------------------------- | ------ | ------------------------------------------------- |  | ------------------------------------------------- | -
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Rolled over options                       |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|No. of shares (000)                       |                                                   | 24,121 |         |  | 774       | (ii) |                                  | (4,571 | )                                                 |  | (5,099                                            | )
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Weighted
    average option price (pence) |                                                   | 260.1  |         |  | 257.0     |      |                                  | 220.5  |                                                   |  | 289.6                                             |  
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Sharesave                                 |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|No. of shares (000)                       |                                                   | 3,972  |         |  | 1,569     |      |                                  | (4     | )                                                 |  | (816                                              | )
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Weighted
    average option price (pence) |                                                   | 169.0  |         |  | 209.0     |      |                                  | 169.0  |                                                   |  | 170.1                                             |  
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Executive Share Option Plan               |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|No. of shares (000)                       |                                                   | 4,231  |         |  | 3,901     |      |                                  |       |                                                   |  | (201                                              | )
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Weighted
    average option price (pence) |                                                   | 219    |         |  | 252.5     |      |                                  |       |                                                   |  | 225.1                                             |  
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Performance Restricted Share Plan         |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|No. of shares (000)                       |                                                   | 2,502  |         |  | 1,610     |      |                                  |       |                                                   |  |                                                  |  
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  
|Weighted
    average option price (pence) |                                                   |       | (i)     |  |          | (i)  |                                  |       |                                                   |  |                                                  |  
|                                          |                                                   |        |         |  |           |      |                                  |        |                                                   |  |                                                   |  

|    
|----
|(i) 
|(ii)
|    

F-47

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 23  Share Options  (Continued)

Movements in the options outstanding under the option schemes for the 53 weeks ended October 1, 2005 are as follows:


|                                      | Options
    outstanding at
    September 25, 2004 |        | Granted |  | Exercised |     | Lapsed or
      canceled |        | Options
    outstanding at
    October 1, 2005 |  | Options
    exercisable at
    October 1, 2005 |    
|------------------------------------- | ------------------------------------------------- | ------ | ------- |  | --------- | --- | ------------------------ | ------ | ---------------------------------------------- |  | ---------------------------------------------- | ---
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Rolled over options                   |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|No. of shares (000)                   |                                                   | 15,225 |         |  |          |     |                          | (6,366 | )                                              |  | (1,637                                         | )  
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Weighted average option price (pence) |                                                   | 261.9  |         |  |          |     |                          | 246.3  |                                                |  | 279.2                                          |    
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Sharesave                             |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|No. of shares (000)                   |                                                   | 4,721  |         |  | 1,163     |     |                          | (22    | )                                              |  | (930                                           | )  
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Weighted average option price (pence) |                                                   | 182.1  |         |  | 258.5     |     |                          | 171.4  |                                                |  | 186.6                                          |    
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Executive Share Option Plan           |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|No. of shares (000)                   |                                                   | 7,931  |         |  | 3,460     |     |                          |       |                                                |  | (69                                            | )  
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Weighted average option price (pence) |                                                   | 235.3  |         |  | 326.1     |     |                          |       |                                                |  | 234.8                                          |    
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Performance Restricted Share Plan     |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|No. of shares (000)                   |                                                   | 4,112  |         |  | 1,285     |     |                          |       |                                                |  | (1,025                                         | )  
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    
|Weighted average option price (pence) |                                                   |       | (i)     |  |          | (i) |                          |       |                                                |  |                                               | (i)
|                                      |                                                   |        |         |  |           |     |                          |        |                                                |  |                                                |    

|   
|---
|(i)
|   

Summarized information about options outstanding under the share option schemes at October 1, 2005 is as follows:


|                                     | Options outstanding    |       | Options exercisable                              | 
|------------------------------------ | ---------------------- | ----- | ------------------------------------------------ | 
|                                     |                        |       |                                                  | 
|Range of exercise prices
    (pence) | Number
    outstanding |       | Weighted average
    remaining
    contract life | 
|                                     |                        |       |                                                  | 
|                                     | (000)                  |       | (years)                                          | 
|Rolled over options                  |                        |       |                                                  | 
|181.4p to 242.0p                     |                        | 924   |                                                  | 
|242.1p to 303.0p                     |                        | 5,146 |                                                  | 
|303.1p to 364.5p                     |                        | 1,152 |                                                  | 
|                                     |                        |       |                                                  | 
|                                     |                        | 7,222 |                                                  | 
|                                     |                        |       |                                                  | 
|Sharesave                            |                        |       |                                                  | 
|169.0
p                              |                        | 2,586 |                                                  | 
|209.0
p                              |                        | 1,221 |                                                  | 
|258.5
p                              |                        | 1,125 |                                                  | 
|                                     |                        |       |                                                  | 
|Executive Share Option Plan          |                        |       |                                                  | 
|219.0
p                              |                        | 4,030 |                                                  | 
|252.5
p                              |                        | 3,838 |                                                  | 
|326.1
p                              |                        | 3,371 |                                                  | 
|330.5
p                              |                        | 83    |                                                  | 
|                                     |                        |       |                                                  | 
|Performance Restricted Share Plan    |                        |       |                                                  | 
| (i)                                |                        | 4,372 |                                                  | 

|   
|---
|(i)
|   

F-48

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Own shares held by the Group and Company
  represent the shares in the Company held in treasury (treasury shares) and by the employee share trusts. During the year, 4,290,000 treasury shares were acquired at a
  cost of £14 million and of these, 2,182,102 shares were subsequently released to employees on the exercise of share options for a total consideration of £6 million. The 2,107,898 shares held in treasury at October 1, 2005 had a market
  value of £7.7 million. The aggregate nominal value of the treasury shares held at October 1, 2005 was £0.1 million.


During the year, the employee share trusts acquired 1,229,080 shares at a cost
  of £4 million and released 3,453,846 shares to employees on the exercise
  of options and other share awards for a total consideration of £8 million.
  The 2,139,879 shares held by the trusts at October 1, 2005 had a market value
  of £7.8 million (September 25, 2004, 4,364,645 shares held had a market
  value of £11.3
million).


The Company has established two employee share trusts:


Share Incentive Plan (SIP) Trust

The SIP Trust was established in 2003 to purchase shares on behalf of employees
participating in the Companys Share Incentive Plan. Under this scheme,
eligible employees are awarded free shares which are normally held in trust for
a holding period of at least three years. After five years the shares may be
transferred to or sold by the employee free of income tax and national insurance
contributions. The trust buys the shares in the market with funds provided by
the Company. During the holding period, dividends are paid directly to the participating
employees. At October 1, 2005, the trustees, Hill Samuel ESOP Trustee Limited,
were holding 836,811 (2004 627,974) shares in the Company. Of these shares, 809,503
(2004 605,689) have been conditionally gifted to employees. During fiscal 2005
309,993 shares were conditionally awarded to employees under the Share Incentive
Plan with a grant date fair value per share of 334.3p.


Employee Benefit Trust (EBT)

The EBT was established in 2003 in order to satisfy the exercise or vesting of
existing and future share options and awards under the Executive Share Option
Plan, Performance Restricted Share Plan, Short Term Deferred Incentive Plan and
the Rolled over options. The trust purchases shares in the market from time to
time, using funds provided by the Company, based on expectations of future requirements.
Dividends are waived by the trust. At October 1, 2005, the
trustees, Mourant & Co Trustees Limited, were holding 1,303,068 shares (2004
3,736,671) shares in the Company. Of these shares, 179,402 (2004 277,320) have
been conditionally gifted to employees and 822,859 (2004 822,859) are under option.


Note 25  Reconciliation of Operating Profit before exceptional items
to Net Cash Inflow from Operating Activities

|                                                                                                     |             |  | 53 weeks ended  |   | 52 weeks ended |                              
|---------------------------------------------------------------------------------------------------- | ----------- |  | --------------- | - | -------------- | -----------------------------
|                                                                                                     |             |  |                 |   |                |                              
|                                                                                                     |             |  | October 1,
2005 |   |                | September 25,
2004 restated *
|                                                                                                     |             |  |                 |   |                |                              
|                                                                                                     | (£ million) | 
|Operating profit before exceptional items                                                            |             |  | 297             |   |                | 273                          
|Depreciation and amortization                                                                        |             |  | 116             |   |                | 108                          
|                                                                                                     |             |  |                 |   |                |                              
|Earnings
        before interest, taxation, depreciation, amortization and exceptional
        items |             |  | 413             |   |                | 381                          
|Decrease in stocks                                                                                   |             |  | 4               |   |                |                             
|(Increase)/decrease in debtors                                                                       |             |  | (2              | ) |                | 10                           
|Increase in creditors                                                                                |             |  | 12              |   |                | 20                           
|Additional pension contributions                                                                     |             |  | (30             | ) |                | (40                          
|Movement in provisions                                                                               |             |  | 2               |   |                | (2                           
|Other non-cash items                                                                                 |             |  | 5               |   |                | 14                           
|                                                                                                     |             |  |                 |   |                |                              
|Net
    cash inflow from operating activities before expenditure
    relating to exceptional items   |             |  | 404             |   |                | 383                          
|Operating exceptional expenditure                                                                    |             |  | (4              | ) |                | (4                           
|Separation costs paid                                                                                |             |  |                |   |                | (1                           
|                                                                                                     |             |  |                 |   |                |                              
|Net cash inflow from operating activities                                                            |             |  | 400             |   |                | 378                          
|                                                                                                     |             |  |                 |   |                |                              

|
|

|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).
|- | --------------------------------------------------------------------------------------------------------------------

F-49

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 26  Net Cash Flow

|                                                                                                  |             |  | 53 weeks ended    |   | 52 weeks ended |                  
|------------------------------------------------------------------------------------------------- | ----------- |  | ----------------- | - | -------------- | -----------------
|                                                                                                  |             |  |                   |   |                |                  
|                                                                                                  |             |  | October 1,
  2005 |   |                | September 25,2004
|                                                                                                  |             |  |                   |   |                |                  
|                                                                                                  | (£ million) | 
|                                                                                                  |             |  |                   |   |                |                  
|Net cash inflow from operating activities beforeexpenditure relating to exceptional
    items (i) |             |  | 404               |   |                | 383              
|Net capital expenditure                                                                           |             |  | (110              | ) |                | (99              
|                                                                                                  |             |  |                   |   |                |                  
|Operating cash inflow after net capital expenditure                                               |             |  | 294               |   |                | 284              
|Net interest paid                                                                                 |             |  | (102              | ) |                | (98              
|Tax paid                                                                                          |             |  | (43               | ) |                | (34              
|                                                                                                  |             |  |                   |   |                |                  
|Normal cash flow                                                                                  |             |  | 149               |   |                | 152              
|Normal dividends paid                                                                             |             |  | (50               | ) |                | (44              
|Issue of ordinary share capital                                                                   |             |  | 2                 |   |                | 8                
|Purchase of own shares by employee share trusts                                                   |             |  | (101              | ) |                | (12              
|Proceeds on release of shares by employee share trusts                                            |             |  | 14                |   |                | 1                
|Special dividends paid                                                                            |             |  |                  |   |                | (501             
|Operating exceptional expenditure                                                                 |             |  | (4                | ) |                | (4               
|Separation costs paid                                                                             |             |  |                  |   |                | (1               
|Facility fees paid                                                                                |             |  |                  |   |                |                 
|Prepaid issue costs in respect of the securitization                                              |             |  |                  |   |                | (22              
|                                                                                                  |             |  |                   |   |                |                  
|Net cash flow                                                                                     |             |  | 10                |   |                | (423             
|                                                                                                  |             |  |                   |   |                |                  

| | 
| | 

|(i) | Includes £30 million (2004 £40
    million, 2003 £27 million) of additional pension contributions.
|--- | --------------------------------------------------------------------------------------------------



Note 27  Net Debt

|                                 |  |  | Cash atbank andin hand (i) |   |  | Overdraft(i) |   |  | Liquid
  resources
  (current
asset
investments) |   |  | Borrowings
due within
one
year |   |  | Borrowingsdue afterone year |   |  | Amountsdue to Six Continents group |   |  | Total  |  
|-------------------------------- |  |  | -------------------------- | - |  | ------------ | - |  | ------------------------------------------------ | - |  | ------------------------------ | - |  | --------------------------- | - |  | ---------------------------------- | - |  | ------ | -
|                                 |  |  |                            |   |  |              |   |  |                                                  |   |  |                                |   |  |                             |   |  |                                    |   |  |        |  
|At September 29, 2002            |  |  | 16                         |   |  |             |   |  | 2                                                |   |  | (3                             | ) |  | (1                          | ) |  | (831                               | ) |  | (817   | )
|Cash flow prior to separation    |  |  | (9                         | ) |  |             |   |  | 4                                                |   |  |                               |   |  |                            |   |  | 257                                |   |  | 252    |  
|                                 |  |  |                            |   |  |              |   |  |                                                  |   |  |                                |   |  |                             |   |  |                                    |   |  |        |  
|Balances at separation           |  |  | 7                          |   |  |             |   |  | 6                                                |   |  | (3                             | ) |  | (1                          | ) |  | (574                               | ) |  | (565   | )
|Cash flow after separation       |  |  | (3                         | ) |  | (13          | ) |  | (3                                               | ) |  | (218                           | ) |  | (1,000                      | ) |  | 574                                |   |  | (663   | )
|                                 |  |  |                            |   |  |              |   |  |                                                  |   |  |                                |   |  |                             |   |  |                                    |   |  |        |  
|At September 27, 2003            |  |  | 4                          |   |  | (13          | ) |  | 3                                                |   |  | (221                           | ) |  | (1,001                      | ) |  |                                   |   |  | (1,228 | )
|Movement arising from cash flows |  |  | 77                         |   |  | 13           |   |  | 141                                              |   |  | 189                            |   |  | (821                        | ) |  |                                   |   |  | (401   | )
|Non-cash movement in net debt    |  |  |                           |   |  |             |   |  |                                                 |   |  | (3                             | ) |  |                            |   |  |                                   |   |  | (3     | )
|                                 |  |  |                            |   |  |              |   |  |                                                  |   |  |                                |   |  |                             |   |  |                                    |   |  |        |  
|At September 25, 2004            |  |  | 81                         |   |  |             |   |  | 144                                              |   |  | (35                            | ) |  | (1,822                      | ) |  |                                   |   |  | (1,632 | )
|Movement arising from cash flows |  |  | 48                         |   |  |             |   |  | (73                                              | ) |  | 35                             |   |  |                            |   |  |                                   |   |  | 10     |  
|Non-cash movement in net debt    |  |  |                           |   |  |             |   |  |                                                 |   |  | (39                            | ) |  | 36                          |   |  |                                   |   |  | (3     | )
|                                 |  |  |                            |   |  |              |   |  |                                                  |   |  |                                |   |  |                             |   |  |                                    |   |  |        |  
|At October 1, 2005               |  |  | 129                        |   |  |             |   |  | 71                                               |   |  | (39                            | ) |  | (1,786                      | ) |  |                                   |   |  | (1,625 | )
|                                 |  |  |                            |   |  |              |   |  |                                                  |   |  |                                |   |  |                             |   |  |                                    |   |  |        |  

| | 
| | 

|(i) | Represents a movement in cash and overdrafts of £48 million inflow (2004 £90
    million inflow, 2003 £25 million outflow) (see Consolidated Statement
    of Cash Flows).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   

F-50

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS
  (Continued)

Note 27  Net Debt  (Continued)

Reconciliation of net cash flow to movements
    in net debt

|                                                           |             |  | October 1,2005 |   |  | September 25,2004 |   |  | September 27,2003 |  
|---------------------------------------------------------- | ----------- |  | -------------- | - |  | ----------------- | - |  | ----------------- | -
|                                                           |             |  |                |   |  |                   |   |  |                   |  
|                                                           | (£ million) | 
|Increase/(decrease) in cash and overdrafts                 |             |  | 48             |   |  | 90                |   |  | (25               | )
|Management of liquid resources                             |             |  | (73            | ) |  | 141               |   |  | 1                 |  
|Financing activities                                       |             |  | 120            |   |  | (651              | ) |  | 118               |  
|Issue of ordinary share capital                            |             |  | 2              |   |  | 8                 |   |  | 4                 |  
|Purchase of own shares                                     |             |  | (101           | ) |  | (12               | ) |  |                  |  
|Proceeds on release of own shares held                     |             |  | 14             |   |  | 1                 |   |  |                  |  
|                                                           |             |  |                |   |  |                   |   |  |                   |  
|Net cash flow– (Note 26)                                   |             |  | 10             |   |  | (423              | ) |  | 98                |  
|Issue costs paid in respect of securitized debt            |             |  |               |   |  | 22                |   |  |                  |  
|Net funding flows with Six Continents group                |             |  |               |   |  |                  |   |  | 193               |  
|Cash payment to former Six Continents PLCshareholders      |             |  |               |   |  |                  |   |  | (702              | )
|                                                           |             |  |                |   |  |                   |   |  |                   |  
|Decrease/(increase) in net debt arising from
    cashflows |             |  | 10             |   |  | (401              | ) |  | (411              | )
|Non-cash movement in net debt                              |             |  | (3             | ) |  | (3                | ) |  |                  |  
|                                                           |             |  |                |   |  |                   |   |  |                   |  
|Decrease/(increase) in net debt                            |             |  | 7              |   |  | (404              | ) |  | (411              | )
|Opening net debt                                           |             |  | (1,632         | ) |  | (1,228            | ) |  | (817              | )
|                                                           |             |  |                |   |  |                   |   |  |                   |  
|Closing net debt                                           |             |  | (1,625         | ) |  | (1,632            | ) |  | (1,228            | )
|                                                           |             |  |                |   |  |                   |   |  |                   |  

Note 28  Financial Commitments

|Operating lease commitments
|---------------------------

The Group has annual commitments under operating leases at October 1, 2005 which expire as follows:


|                           | October 1, 2005 |            |             | September 25, 2004 |      
|-------------------------- | --------------- | ---------- | ----------- | ------------------ | -----
|                           |                 |            |             |                    |      
|                           |                 | Properties |             |                    | Other
|                           |                 |            |             |                    |      
|                           |                 |            | (£ million) |                   
|Within one year            |                 |            | 2           |                    |      
|Between one and five years |                 |            | 3           |                    |      
|After five years           |                 |            | 37          |                    |      
|                           |                 |            |             |                    |      
|                           |                 |            | 42          |                    |      
|                           |                 |            |             |                    |      

F-51

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 28  Financial Commitments  (Continued)

Total commitments under noncancelable operating leases at October 1, 2005 are as follows:


|                    | October 1,
2005 | 
|------------------- | --------------- | 
|                    |                 | 
|                    | (£ million)     | 
|Due within one year | 48              | 
|One to two years    | 43              | 
|Two to three years  | 39              | 
|Three to four years | 39              | 
|Four to five years  | 38              | 
|Thereafter          | 612             | 
|                    |                 | 
|                    | 819             | 
|                    |                 | 

The vast majority of the Groups leases are institutional standard UK commercial property leases which provide for five yearly rent reviews to open market value and enjoy statutory rights to renewal on expiry. They
generally do not contain conditions relating to rent escalation, rights to purchase, concessions, residual values or other material provisions of an unusual nature.


The future minimum rentals to be received under noncancelable subleases as at October 1, 2005 amounted to £29 million (2004 £26 million).


|Capital commitments                                                                           |                 |  |                    | 
|--------------------------------------------------------------------------------------------- | --------------- |  | ------------------ | 
|                                                                                              | October 1,
2005 |  | September 25,
2004 | 
|                                                                                              |                 |  |                    | 
|                                                                                              | (£ million)     | 
|Contracts placed for expenditure on fixed assets not
provided fo rin the financial statements | 28              |  | 26                 | 
|                                                                                              |                 |  |                    | 

Note 29  Contingencies

On separation
    from the Six Continents group on April 15, 2003, the Company gave no warranties
    and agreed to give certain limited indemnities to InterContinental Group.
    These indemnities were given to protect InterContinental Group against liabilities
    which it may incur but which relate exclusively or predominantly to Retail
    or SCPD. In addition, the Company indemnified InterContinental Group in respect
    of 50% of certain contingent liabilities which do
not relate exclusively or predominantly to the retail business and SCPD or to
    the hotels business and soft drinks business. These shared contingent liabilities
    relate primarily to businesses which have been disposed of by the Six Continents
    Group or its subsidiaries in the past and where warranties and indemnities
    were given. It is the view of the Directors that, other than to the extent
    that liabilities have been provided for in these financial statements, such
    indemnities are not expected to
result in financial loss to the Group. The amount provided for such liabilities
    in these financial statements at October 1, 2005 was £nil (2004 £1
    million, 2003 £3 million). The terms of the guarantee provide no limitation
    to the maximum potential future liabilities. The indemnities described above
    expire on April
    15, 2010 except in the case of liabilities relating to the former business
    of the group company, Lastbrew Limited, for which the indemnity applies indefinitely.


Note 30  Related Party Transactions

There were no transactions with related parties requiring disclosure under FRS 8 Related Party Transactions during either fiscal 2005 or fiscal 2004. During fiscal 2003 in the period before separation, the
Group had the following transactions with Six Continents group:


|                                                                                  | September 27,2003 |  
|--------------------------------------------------------------------------------- | ----------------- | -
|                                                                                  |                   |  
|                                                                                  | (£ million)       |  
|Net interest paid                                                                 | 23                |  
|Costs recharged, including separation
        costs                               | 29                |  
|Pension scheme payments                                                           | 3                 |  
|Net funding                                                                       | (184              | )
|                                                                                  |                   |  
|Total                                                                             | (129              | )
|                                                                                  |                   |  
|Amounts due to Six Continents group
    at the balance sheet date  (see Note 27) | —                 |  
|                                                                                  |                   |  

F-52

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United Kingdom (UK GAAP) which differ from those generally accepted in the United States (US GAAP). The
significant differences, as they apply to the Group, are summarized below.


Basis of preparation

As described in Note 1 of Notes to the Financial Statements, the Groups financial statements exclude the results, cash flows and net assets of Six Continents PLC and its hotels and soft drinks subsidiaries for all
periods presented.  This basis of preparation accords with the carve out basis of accounting that would be required under US GAAP.  Similarly, the merger accounting principles used with respect to the transfer of entities to the Group
from other Six Continents group companies accords with the accounting for a reorganization of entities under common control that would be required under US GAAP.


Intangible fixed assets

Under UK GAAP, goodwill arising on the acquisition of subsidiaries is capitalized and amortized over its estimated useful life. Goodwill arising on acquisitions prior to September 30, 1998 was eliminated against reserves.
Under US GAAP, the Group adopted SFAS 142 Goodwill and Other Intangible Assets with effect from October 1, 2002.  In accordance with SFAS 142, goodwill would be capitalized and not amortized, but tested annually for impairment. Prior to
October 1, 2002 under US GAAP, goodwill would have been capitalized and amortized over its estimated useful life, not exceeding 40 years.


Under UK GAAP, computer software is included in tangible fixed assets. Under US GAAP, software which is not an integral part of a related item of hardware would be treated as an intangible asset.


Impairment of goodwill

Under UK GAAP, goodwill is tested for potential impairment when there is an indication that impairment may have occurred. The impairment is measured by comparing the goodwill carrying value of the relevant
income-generating unit with the higher of net realizable value and value in use. Under US GAAP, SFAS 142 requires goodwill to be tested for impairment on an annual basis, or on an interim basis when a triggering event occurs, using a two-step
process. The first step requires the comparison of the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, then no further testing is required. If the carrying value of a
reporting unit exceeds its fair value, a second step is required to determine the amount of the impairment charge, if any.  An impairment charge is recognized if the carrying value of a reporting units goodwill exceeds the fair value of that
goodwill.  The Group has performed an updated evaluation of its goodwill as at October 1, 2005 which has concluded that an impairment charge is not required under SFAS 142.


For US GAAP purposes, reporting units have been determined by reference to internal management and reporting structures at the level below the operating segments. Goodwill has been allocated to the reporting units in
accordance with the location, in the reporting unit, of the acquired pubs and restaurants that generated the goodwill.


F-53

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

Tangible fixed assets

Prior to October 1, 1999, the Groups properties were valued from time to time by professionally qualified external valuers and book values were adjusted to accord with the valuations.  Under US GAAP, revaluation
would not have been permitted, which means that the carrying value of tangible fixed assets is lower under US GAAP.


Under UK GAAP, depreciation is based on the book value of assets, including revaluation where appropriate. Prior to October 1, 1999, freehold pubs were not depreciated under UK GAAP, as any charge would have been
immaterial given that such properties were maintained, as a matter of policy, by a program of repair and maintenance such that their residual values were at least equal to their book values.  Following the introduction of FRS 15, which was
implemented by the Group with effect from October 1, 1999, all properties are depreciated under UK GAAP. There is now no difference between UK GAAP and US GAAP with regard to the annual depreciation charge.


Under UK GAAP, impairment of tangible fixed assets is measured with reference to discounted cash flows. Under US GAAP, if the carrying value of assets is supported by undiscounted cash flows there would be no
impairment.


Assets held for sale

US GAAP would require that where the value of an asset will be recovered through a sale transaction rather than continuing use the asset is classified as held for sale. Assets held for sale are valued at the lower of book
value and fair value less costs to sell and no longer depreciated. Under UK GAAP, there is no held for sale classification.


Lease premiums

Under US GAAP, payments made on entering into operating leases would be classified as current and non-current prepayments and amortized over the life of the lease. Under UK GAAP, such payments are included in tangible
fixed assets.


Share-based compensation

Under UK GAAP, the Group makes a charge for the cost of share awards or share options based on the difference between the fair value of the shares on the date of the award and the amount the scheme participant may be
required to pay for the shares. The expense is recognized over the performance period of the relevant scheme based on a reasonable expectation of the extent to which the performance criteria will be met. Under APB 25 Accounting for stock
issued to employees, these awards and options would be accounted for as variable plans with the expense based on the intrinsic value using the share price at the balance sheet date, remeasured at each balance sheet date and spread over the
performance period. Under US GAAP, a charge could therefore arise in respect of the Groups Executive Share Option Plan (no charge arises under UK GAAP as the exercise price is equivalent to the market value at date of grant).


The Group also operates an Inland Revenue approved Sharesave scheme open to all employees, which gives a 20% discount on the fair value of its shares. Under UK GAAP no cost is recognized in respect of this scheme. Under US
GAAP, fixed plan accounting would apply resulting in an expense for the 20% discount over the period of the savings contracts. Since January 24, 2002, an employers offer to enter into new contracts at a lower exercise price than the price
under existing contracts can cause variable plan accounting to apply in respect of certain options.  This could result in an additional charge for those options that qualify for variable plan accounting.


Under UK GAAP, the National Insurance liability payable on gains made by employees on the exercise of share options is accrued during the performance period of the share scheme calculated using the market price of the
Companys shares at the balance sheet date. Under US GAAP, an accrual would only be recorded when the share options are exercised and a liability exists.


F-54

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

Pension costs

Under UK GAAP, amounts charged to the profit and loss account comprise the current service cost and net finance income or expense being the difference between the expected return on plan assets and the interest cost of the
plan liabilities. Any amounts arising from changes in actuarial assumptions and differences between the expected and actual return on plan assets are recognized in the statement of total recognized group gains and losses.  Under US GAAP, such
amounts, to the extent that they exceed 10% of the greater of the benefit obligation and the fair value of plan assets, would be amortized through the income statement over the average remaining service lives of the employees.


Under UK GAAP, the surplus or deficit in the pension plans is reported on the balance sheet. Under US GAAP, as the accumulated benefit obligations exceeded the fair value of the plans assets the difference would be
recognized as a balance sheet liability, after the elimination of any amounts previously recognized as a prepaid pension cost.  An equal amount, not exceeding the amount of unrecognized past service cost, would be recognized as an intangible asset
with the balance reported in other comprehensive income.


Compensated absences

Under US GAAP, an accrual would be made to reflect the cost of employees unused vacation allowances at the point of entitlement, when the right to a compensated absence accumulates during the employees period
of service. No equivalent accrual has been made under UK GAAP.


Deferred taxation

Under UK GAAP, the Group provides for deferred taxation in respect of timing differences, subject to certain exceptions, between the recognition of gains and losses in the financial statements and for tax purposes. Timing
differences recognized include accelerated capital allowances and short-term timing differences. Timing differences not recognized include those relating to the revaluation of fixed assets in the absence of a commitment to sell the assets and the
gain on sale of assets rolled into replacement assets. Under US GAAP, deferred taxation would be computed, on a stand-alone basis, on all temporary differences between the tax bases and book values of assets and liabilities which will result in
taxable or tax deductible amounts arising in future years.  A valuation allowance is established when it is more likely than not that some portion or all of the deferred tax assets will not be realized.


Derivative instruments and hedging

The Group uses interest rate and currency swaps
    to fix the interest rate payable on the floating rate tranches of its securitized
    debt. Under UK GAAP, these instruments are measured at cost and accounted
    for as hedges, whereby gains and losses are recognized only when the exposure
    that is being hedged is itself recognized. Under US GAAP, all derivative
    instruments (including those embedded in other contracts) are recognized
    on the balance sheet at their fair
values. Changes in fair value are recognized in net income unless hedge accounting
    can be applied. To qualify for hedge accounting, the hedging relationship
    must be designated, documented and tested for ongoing effectiveness. If hedge
    accounting is applied, changes in fair value are recognized periodically
    in net income or in shareholders equity as a component of other comprehensive
    income depending on whether the derivative qualifies as a fair value or cash
flow hedge.


Upon the issuance of the floating rate tranches of the securitized debt, the Groups interest rate and currency swaps were designated as cash flow hedges and since then have qualified for hedge accounting. Hedge
ineffectiveness has been immaterial since this date. Prior to their designation as cash flow hedges, changes in the fair value of the interest rate and currency swaps were recorded in the income statement.


Proposed dividends

Under UK GAAP, final ordinary dividends are provided for in the year in respect of which they are proposed by the Board for approval by shareholders. Under US GAAP, dividends would not be provided for until the year in
which they are declared.


F-55

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Earnings per share
|------------------

On December 2, 2003, the Company completed a share consolidation which resulted in the issue of 12 new ordinary shares of 7 1/12p each for every 17 existing ordinary shares of 5p each. Under UK GAAP, prior period earnings
per share have not been restated as the share consolidation was accompanied by a special dividend and the combined transaction was designed to have the same overall effect as a buy-back of shares at fair value.  US GAAP would require prior period
net income per ordinary share to be restated to reflect the change in capital structure.


|Exceptional items
|-----------------

Under UK GAAP, certain exceptional items are shown on the face of the profit and loss account statement after operating profit.  These items are mainly gains and losses on the sale of businesses and fixed assets, and the
  cost of fundamental reorganizations.  Under US GAAP these items would be classified as operating profit or expenses.


|Classification of debt issuance costs
|-------------------------------------

Under UK GAAP, the debt issuance costs relating to the securitized debt are deducted from the carrying value of the related loan notes. Under US GAAP, these costs would be reported as deferred financing costs and
classified as current and non-current assets.


|Provisions
|----------

In previous years, under UK GAAP provisions for liabilities and charges included amounts relating to the restructuring of certain of the Groups operations. Under US GAAP, certain of these amounts would have been
charged to net income as incurred. The restructuring was substantially completed in fiscal 2003.


|Cash and cash equivalents
|-------------------------

Under UK GAAP, cash at bank and in hand comprises deposits repayable on demand (less overdrafts payable on demand) and restricted cash and excludes liquid resources (short-term deposits and investments of less than one
year other than cash). Under US GAAP, cash and cash equivalents comprises deposits repayable on demand, liquid resources with a maturity of three months or less at the date acquired and excludes restricted cash.


|Restricted cash
|---------------

Restricted cash of £16 million (2004 £4 million, 2003 £nil) represents disposal proceeds held on deposit in a secured account. The use of these funds is restricted by the terms of the securitization and may
only be used with the approval of the security trustee for certain specified purposes such as capital enhancement expenditure and business acquisitions.


F-56

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Income
|------

The significant adjustments required to convert earnings available for shareholders in accordance with UK GAAP to net income in accordance with US GAAP are:


|                                                               |  | 53 weeks ended      |       | 52 weeks ended        | 
|-------------------------------------------------------------- |  | ------------------- | ----- | --------------------- | 
|                                                               |  |                    
|October 1,
2005                                                |  | September 25,
2004* |       | September 27,
  2003*
|                                                               |  |                     |       |                       | 
|(£ million, except per ordinary share amounts)                
|Earnings available for shareholders in accordance with UK GAAP |  |                     | 133   |                       | 
|                                                               |  |                     |       |                       | 
|Adjustments:                                                   |  |                     |       |                       | 
|Amortization
    of intangible fixed assets                    |  |                     | (5    | )                     | 
|Depreciation of tangible fixed assets                          |  |                     | 6     |                       | 
|Amortization of lease premiums                                 |  |                     | (1    | )                     | 
|Disposal of tangible fixed assets                              |  |                     | 13    |                       | 
|Pension costs                                                  |  |                     | (18   | )                     | 
|Share-based compensation                                       |  |                     | (4    | )                     | 
|Compensated absences                                           |  |                     | (6    | )                     | 
|Change in fair value of derivatives                            |  |                     |      |                       | 
|Provisions                                                     |  |                     |      |                       | 
|Deferred taxation:                                             |  |                     |       |                       | 
| on above adjustments                                         |  |                     | 3     |                       | 
| methodology                                                  |  |                     |      |                       | 
|                                                               |  |                     |       |                       | 
|                                                               |  |                     | (12   | )                     | 
|                                                               |  |                     |       |                       | 
|Net income in accordance with US GAAP                          |  |                     | 121   |                       | 
|                                                               |  |                     |       |                       | 
|Net income per ordinary share                                  |  |                     |       |                       | 
|Basic (i)                                                      |  |                     | £0.24 |                       | 
|Diluted (ii)                                                   |  |                     | £0.23 |                       | 
|                                                               |  |                     |       |                       | 

|    
|----
|*   
|(i) 
|(ii)
|    
|    
|    
|    
|    
|    
|    
|    

F-57

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Comprehensive income
|--------------------

Comprehensive income under US GAAP is as follows:


|                                                                                             |  |  | 53 weeks ended |   | 52 weeks ended |                  
|-------------------------------------------------------------------------------------------- |  |  | -------------- | - | -------------- | -----------------
|                                                                                             |  |  |                |   |                |                  
|                                                                                             |  |  | October 1,2005 |   |                | September 25,2004
|                                                                                             |  |  |                |   |                |                  
|                                                                                             |  |  |                |   |                | (£ million)      
|Net income in
      accordance with US GAAP                                                  |  |  | 121            |   |                | 122              
|                                                                                             |  |  |                |   |                |                  
|Other comprehensive income:                                                                  |  |  |                |   |                |                  
|Transfer of minimum pension
    liability on April 1, 2003, net of tax of
      £109 million |  |  |               |   |                |                 
|Minimum pension liability,
net of tax of £5 million (2004 £13 million,
2003 £8 million)      |  |  | 11             |   |                | 31               
|Currency translation differences                                                             |  |  |               |   |                | (1               
|Cash flow hedges, net of tax of £8
            million (2004 £3 million,
2003 £nil)          |  |  | (18            | ) |                | (8               
|                                                                                             |  |  |                |   |                |                  
|                                                                                             |  |  | (7             | ) |                | 22               
|                                                                                             |  |  |                |   |                |                  
|Comprehensive
      income in accordance with US GAAP                                        |  |  | 114            |   |                | 144              
|                                                                                             |  |  |                |   |                |                  

Movements in other comprehensive income amounts (net of related tax) are as follows:


|                      |  | Minimum pensionliabilityadjustment |   | Currencytranslationdifferences |   | Cash flowhedges |   | Total |  
|--------------------- |  | ---------------------------------- | - | ------------------------------ | - | --------------- | - | ----- | -
|                      |  |                                    |   |                                |   |                 |   |       |  
|                      |  |                                    |  
|                      |  | (£ million)                        |  
|At September 29, 2002 |  |                                   |   |                               |   |                |   |      |  
|Movement in the year  |  | (236                               | ) | 7                              |   |                |   | (229  | )
|                      |  |                                    |   |                                |   |                 |   |       |  
|At September 27, 2003 |  | (236                               | ) | 7                              |   |                |   | (229  | )
|Movement in the year  |  | 31                                 |   | (1                             | ) | (8              | ) | 22    |  
|                      |  |                                    |   |                                |   |                 |   |       |  
|At September 25, 2004 |  | (205                               | ) | 6                              |   | (8              | ) | (207  | )
|Movement in the year  |  | 11                                 |   |                               |   | (18             | ) | (7    | )
|                      |  |                                    |   |                                |   |                 |   |       |  
|At October 1, 2005    |  | (194                               | ) | 6                              |   | (26             | ) | (214  | )
|                      |  |                                    |   |                                |   |                 |   |       |  

Since the designation of the Groups derivatives as cash flow hedges on the issuance of the floating rate tranches of the securitized debt, under US GAAP there has been no ineffectiveness recorded in the income
statement.


F-58

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Shareholders equity
|--------------------

The significant adjustments required to convert shareholders funds in accordance with UK GAAP to shareholders equity in accordance with US GAAP are:


|                                                                 |  | October 1,2005 |   | September 25,2004 restated* |  
|---------------------------------------------------------------- |  | -------------- | - | --------------------------- | -
|                                                                 |  |                |   |                             |  
|                                                                 |  | (£ million)    |  
|Shareholders funds as reported
      in accordance with UK GAAP |  | 1,417          |   | 1,423                       |  
|Adjustments:                                                     |  |                |   |                             |  
|Intangible
        fixed assets:                                 |  |                |   |                             |  
|Goodwill
         cost                                          |  | 174            |   | 174                         |  
| accumulated amortization                                       |  | 5              |   | 5                           |  
|                                                                 |  |                |   |                             |  
|                                                                 |  | 179            |   | 179                         |  
|Computer
        software  cost                                 |  | 31             |   | 29                          |  
|
        accumulated amortization                               |  | (15            | ) | (10                         | )
|                                                                 |  |                |   |                             |  
|                                                                 |  | 16             |   | 19                          |  
|Pension
        intangible fixed asset                           |  | 10             |   | 12                          |  
|                                                                 |  |                |   |                             |  
|Total
        intangible fixed assets                            |  | 205            |   | 210                         |  
|                                                                 |  |                |   |                             |  
|Tangible
        fixed assets:                                   |  |                |   |                             |  
|Cost                                                             |  | (782           | ) | (781                        | )
|Accumulated
        depreciation                                 |  | (99            | ) | (108                        | )
|                                                                 |  |                |   |                             |  
|Total
        tangible fixed assets                              |  | (881           | ) | (889                        | )
|                                                                 |  |                |   |                             |  
|Non-current
        assets:                                      |  |                |   |                             |  
|Lease
        premiums                                           |  | 16             |   | 17                          |  
|Deferred
        financing costs                                 |  | 18             |   | 20                          |  
|Assets
        held for sale                                     |  | 9              |   |                            |  
|Current
           assets:                                       |  |                |   |                             |  
|Cash
        and cash equivalents                                |  | 183            |   | 201                         |  
|Restricted
        cash                                          |  | 16             |   | 4                           |  
|Cash
        at bank and in hand                                 |  | (129           | ) | (81                         | )
|Current
        asset investments                                |  | (70            | ) | (124                        | )
|Lease
        premiums                                           |  | 1              |   | 1                           |  
|Deferred
        financing costs                                 |  | 2              |   | 2                           |  
|Creditors:
        amounts falling due within one year:          |  |                |   |                             |  
|Accrual
        for compensated absences                         |  | (6             | ) |                            |  
|Share-based
        compensation                                 |  | 2              |   |                            |  
|Borrowings                                                       |  | (2             | ) | (2                          | )
|Proposed
        dividends                                       |  | 37             |   | 34                          |  
|Derivatives                                                      |  | (6             | ) |                            |  
|Creditors:
        amounts falling due after one year:           |  |                |   |                             |  
|Borrowings                                                       |  | (5             | ) | (2                          | )
|Derivatives                                                      |  | (42            | ) | (28                         | )
|Provisions
        for liabilities and charges:                  |  |                |   |                             |  
|Accrued
        pension cost                                     |  | (25            | ) | (40                         | )
|Deferred
        taxation                                        |  | 55             |   | 60                          |  
|                                                                 |  |                |   |                             |  
|Total adjustments                                                |  | (622           | ) | (617                        | )
|                                                                 |  |                |   |                             |  
|Shareholders equity in
      accordance with US GAAP            |  | 795            |   | 806                         |  
|                                                                 |  |                |   |                             |  

| | 
| | 

|* | Restated to (a) reflect
          the adoption of FRS 17 under UK GAAP, (b) reclassify lease premiums
          of £18 million paid
          in relation to operating leases from tangible fixed assets to current
          (£1 million) and non-current
  assets (£17 million), and (c) reclassify computer software of £19 million
  from tangible fixed assets to intangible fixed assets. The latter two adjustments
  arose in connection with preparing to convert the Groups financial statements
  from UK GAAP to International Financial Reporting Standards. None of these restatements
  have an impact on previously reported shareholders equity
  under US GAAP.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

F-59

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Additional information required by US
    GAAP in respect of earnings per share
|-------------------------------------------------------------------------------

The following table sets forth the computation of basic and diluted earnings per share from continuing operations under US GAAP:


|                                                                              |                 | 53 weeks ended           |  | 52 weeks ended          
|----------------------------------------------------------------------------- | --------------- | ------------------------ |  | ------------------------
|                                                                              |                 |                          |  |                         
|                                                                              | October 1,
2005 | September 25,
      2004 |  | September 27,
      2003
|                                                                              |                 |                          |  |                         
|Numerator for basic and diluted
      earnings per ordinary share (£ million) |                 | 121                      |  | 122                     
|                                                                              |                 |                          |  |                         
|Denominator for basic earnings per
      ordinary share (million) (i)         |                 | 511                      |  | 520                     
|Dilutive effect of employee share
      options (million) (i)                 |                 | 6                        |  | 3                       
|                                                                              |                 |                          |  |                         
|Denominator for diluted earnings
      per share (million) (i)                |                 | 517                      |  | 523                     
|                                                                              |                 |                          |  |                         
|Basic earnings per ordinary share                                             |                 | £0.24                    |  | £0.23                   
|Diluted earnings per ordinary share                                           |                 | £0.23                    |  | £0.23                   
|                                                                              |                 |                          |  |                         

|
|

|(i) | Share numbers for all periods have been adjusted
    retrospectively to reflect the share consolidation on December 2, 2003.
|--- | ----------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                             
|    |                                                                                                                             
|    |                                                                                                                             
|    |                                                                                                                             
|    |                                                                                                                             

|                                    
|------------------------------------
|Consolidated statement of cash flows

The consolidated statement of cash flows prepared under UK GAAP presents substantially the same information as that required under US GAAP but differs with regard to classification of items within the statement and as
regards the definition of cash under UK GAAP and cash and cash equivalents under US GAAP.


US GAAP requires that cash and cash equivalents include liquid resources with a maturity of three months or less at the date acquired but do not include bank overdrafts and restricted cash. Under UK GAAP cash
for the purposes of the cash flow statement comprises cash in hand and deposits repayable on demand, less overdrafts payable on demand but excludes liquid resources (short-term deposits and investments of less than one year other than cash). Under
UK GAAP, cash flows are presented separately for operating activities, dividends received from associates, returns on investments and servicing of finance, taxation, capital expenditure and financial investment, acquisitions, equity dividends and
management of liquid resources and financing.  US GAAP, however, requires only three categories of cash flow activity to be reported: operating, investing and financing.  Cash flows from taxation and returns on investments and servicing of finance
shown under UK GAAP would, with the exception of dividends paid to minority shareholders, be included as operating activities under US GAAP. The payment of dividends would be included as a financing activity under US GAAP. Under US GAAP, capital
expenditure and financial investment and acquisitions are reported within investing activities.


F-60




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Consolidated statement of cash flows  (continued)
|--------------------------------------------------

The consolidated statement of cash flows presented under US GAAP would be as follows.


|                                                                                                     |  | 53 weeks
      ended |      | 52 weeks ended                      | 
|---------------------------------------------------------------------------------------------------- |  | -------------------- | ---- | ----------------------------------- | 
|                                                                                                     |  |                      |      |                                     | 
|                                                                                                     |  | October 1,2005       |      | September 25,2004
        restated* | 
|                                                                                                     |  |                      |      |                                     | 
|                                                                                                     |  | (£ million)          |     
|Operating activities:                                                                                |  |                      |      |                                     | 
|Earnings available for shareholders                                                                  |  |                      | 133  |                                     | 
|Adjustments to reconcile profit for the financial year
to net cash provided by operating activities: |  |                      |      |                                     | 
|Depreciation and amortization                                                                        |  |                      | 116  |                                     | 
|Working capital movements                                                                            |  |                      | 35   |                                     | 
|Additional pension contributions                                                                     |  |                      | (30  | )                                   | 
|Other non-cash items                                                                                 |  |                      | 1    |                                     | 
|                                                                                                     |  |                      |      |                                     | 
|Net cash provided by operating activities                                                            |  |                      | 255  |                                     | 
|                                                                                                     |  |                      |      |                                     | 
|Investing activities:                                                                                |  |                      |      |                                     | 
|Property and equipment additions                                                                     |  |                      | (167 | )                                   | 
|Property and equipment disposals                                                                     |  |                      | 57   |                                     | 
|Restricted cash                                                                                      |  |                      | (12  | )                                   | 
|Decrease/(increase) in
   short-term deposits andinvestments                                         |  |                      | 19   |                                     | 
|                                                                                                     |  |                      |      |                                     | 
|Net cash used in investing activities                                                                |  |                      | (103 | )                                   | 
|                                                                                                     |  |                      |      |                                     | 
|Financing activities:                                                                                |  |                      |      |                                     | 
|Issue of ordinary share capital                                                                      |  |                      | 2    |                                     | 
|Purchase of own shares by employee share trusts                                                      |  |                      | (101 | )                                   | 
|Proceeds on release of own shares held                                                               |  |                      | 14   |                                     | 
|Equity dividends paid                                                                                |  |                      | (50  | )                                   | 
|Repayment of amounts due to Six Continents group                                                     |  |                      |     |                                     | 
|Proceeds from issue of securitized debt                                                              |  |                      |     |                                     | 
|Repayments of principal in respect of securitized debt                                               |  |                      | (35  | )                                   | 
|Borrowings drawn down under syndicated loan facility                                                 |  |                      |     |                                     | 
|Borrowings repaid in respect of syndicated loan facility                                             |  |                      |     |                                     | 
|(Decrease)/increase in overdraft                                                                     |  |                      |     |                                     | 
|Net funding flows with Six Continents group                                                          |  |                      |     |                                     | 
|Cash payment to former Six Continents PLC                                                            |  |                      |     |                                     | 
|                                                                                                     |  |                      |      |                                     | 
|Net cash used in financing activities                                                                |  |                      | (170 | )                                   | 
|                                                                                                     |  |                      |      |                                     | 
|Net change in cash and cash equivalents                                                              |  |                      | (18  | )                                   | 
|Opening cash and cash equivalents                                                                    |  |                      | 201  |                                     | 
|                                                                                                     |  |                      |      |                                     | 
|Closing cash and cash equivalents                                                                    |  |                      | 183  |                                     | 
|                                                                                                     |  |                      |      |                                     | 
|Supplemental disclosures of cash flow information                                                    |  |                      |      |                                     | 
|Interest paid                                                                                        |  |                      | 113  |                                     | 
|Taxes paid                                                                                           |  |                      | 43   |                                     | 

|  |                                                                                                                     
|- | --------------------------------------------------------------------------------------------------------------------
| 
|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see Note 3 of Notes to the Financial Statements).

F-61

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Concentrations of credit risk
|-----------------------------

At October 1, 2005, the Group had interest rate
    and currency swap agreements in place with a notional underlying principal
    of £450 million. The sole counterparty to these arrangements was the
    Royal Bank of Scotland. The Group does not consider this to be a significant
    concentration of credit risk due to the size, financial standing and scale
    of operations of the Royal Bank of Scotland.


|Fair value of financial instruments
|-----------------------------------

The following information is presented in compliance
    with the requirements of US GAAP. The carrying amounts and fair values of
  the financial instruments of the Group are as follows:


|                          | October 1, 2005 |   | September 25, 2004 |  
|------------------------- | --------------- | - | ------------------ | -
|                          |                 |   |                    |  
|                          | Carryingamount  |   | Fair
value         |  
|                          |                 |   |                    |  
|                          | (£ million)     |  
|Assets                    |                 |   |                    |  
|Cash and cash equivalents | 183             |   | 183                |  
|Restricted cash           | 16              |   | 16                 |  
|Current asset investments | 1               |   | 1                  |  
|                          |                 |   |                    |  
|Liabilities               |                 |   |                    |  
|Securitized debt          | (1,828          | ) | (1,952             | )
|Other borrowings          | (4              | ) | (4                 | )
|Interest rate swaps       | (31             | ) | (31                | )
|Currency swaps            | (17             | ) | (17                | )

The following methods and assumptions were used
  by the Group in establishing its fair values of financial instruments:


| | Cash
        and cash equivalents(including
    restricted cash): | the carrying
          amount reported in the balance sheet forcashapproximates
      to its fair value.                                                                                                                                                                                                                                                                                                
| | ----------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | Current
      asset investments:                                  | the carrying
          amount reported in the balance sheet for current asset investments approximates
      their fair value.                                                                                                                                                                                                                                                                          
| |                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | Overdrafts:                                                       | the carrying
          amount reported in the balance sheet for overdrafts approximates their
      fair value.                                                                                                                                                                                                                                                                                         
| |                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | Securitized
      debt:                                           | the fair
          values of the various tranches of the securitized debt havebeen
      estimated using period end mid-market quoted prices.                                                                                                                                                                                                                                                           
| |                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | Other borrowings:                                                 | the carrying
          amount reported in the balance sheet forotherborrowings
      approximates their fair value.                                                                                                                                                                                                                                                                                     
| |                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                         
| | Interest
      rate and currency swaps:                           | the
          estimated fair values of the Groups interest rate and currencyswaps
          is the amount which the Group could expect topay
          orreceive
          on the termination of the agreements.These
          amounts arebased
          on quotations from counterparties and takeintoconsideration
          interest and exchange rates prevailing at the balancesheet
      date.
| |                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                         

|Assets held for sale
|--------------------

At October 1, 2005, surplus property assets with a
net book value of £9 million were classified as held for sale. No write
down has been required as the fair value of assets (less costs to sell) exceeds
the carrying
amounts. Of these surplus assets, sites with a net book value of £1 million
have been sold for an amount exceeding carrying value since the year end. The
remaining sites are expected to be sold in the period up to September 2006. The
assets classified as held for sale at the year end, were included in reportable
segments
as follows; Pubs & Bars £1 million and Restaurants £8 million.


Subsequent to the year end, additional surplus properties with a net book value
of £11 million included in tangible fixed assets at the balance sheet date,
have met the criteria to be classified as held for sale. Apart from two sites,
these properties have subsequently been sold for an amount exceeding carrying
value. The remaining two sites with a net book value of £2 million are expected
to be sold during March 2006.


F-62




Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

|Additional information required by US
    GAAP in respect of the Groups two principal pension plans
|----------------------------------------------------------------------------------------------------

Mitchells & Butlers
    became the sponsoring employer of its two principal pension plans on April
    1, 2003. The pension cost for these plans since this date computed in accordance
    with the requirements of US GAAP
comprises:


|                                |  | 53 weeks
ended October 1,
2005 |   | 52 weeks
  ended  September 25,
2004 |   | Six-month
period ended
September 27,
2003 |  
|------------------------------- |  | ------------------------------ | - | ------------------------------------ | - | ----------------------------------------- | -
|                                |  |                                |   |                                      |   |                                           |  
|                                |  | (£ million)                    |  
|Service cost                    |  | 14                             |   | 14                                   |   | 6                                         |  
|Interest cost                   |  | 59                             |   | 55                                   |   | 27                                        |  
|Expected return on plan assets  |  | (62                            | ) | (55                                  | ) | (24                                       | )
|Amortization of:                |  |                                |   |                                      |   |                                           |  
|Unrecognized transition asset   |  |                               |   | (3                                   | ) | (2                                        | )
|Unrecognized prior service cost |  | 2                              |   | 2                                    |   | 1                                         |  
|Unrecognized net loss           |  | 15                             |   | 20                                   |   | 8                                         |  
|                                |  |                                |   |                                      |   |                                           |  
|Net periodic pension cost       |  | 28                             |   | 33                                   |   | 16                                        |  
|                                |  |                                |   |                                      |   |                                           |  

The net periodic pension cost of £28 million consists of £20 million in respect of the Mitchells & Butlers Pension Plan and £8 million in relation to the Mitchells & Butlers Executive Pension
Plan.


The major assumptions used in computing the pension
expense were:


|                                                 | 53 weeks
endedOctober 1,
2005 |   | 52 weeks
endedSeptember 25,
2004 |   | Six-month
        period ended
        September 27,
        2003 |  
|------------------------------------------------ | ----------------------------- | - | -------------------------------- | - | ----------------------------------------------------------------- | -
|                                                 |                               |   |                                  |   |                                                                   |  
|Expected long-term rate of return on plan assets | 6.8                           | % | 6.8                              | % | 6.7                                                               | %
|Discount rate                                    | 5.5                           | % | 5.3                              | % | 5.4                                                               | %
|Expected long-term rate of earnings increases    | 4.3                           | % | 4.2                              | % | 4.1                                                               | %

|                                                        | October 1, 2005                  |   | September 25, 2004                                         |  
|------------------------------------------------------- | -------------------------------- | - | ---------------------------------------------------------- | -
|                                                        |                                  |   |                                                            |  
|                                                        | Mitchells & Butlers
Pension Plan |   | Mitchells & Butlers
        Executive
        Pension Plan |  
|                                                        |                                  |   |                                                            |  
|                                                        | (£ million)                      |  
|Accumulated benefit obligation (all vested)             | 919                              |   | 286                                                        |  
|                                                        |                                  |   |                                                            |  
|Fair value of plan assets                               | 825                              |   | 257                                                        |  
|Projected benefit obligation                            | (936                             | ) | (294                                                       | )
|                                                        |                                  |   |                                                            |  
|Net plan obligation                                     | (111                             | ) | (37                                                        | )
|Unrecognized prior service cost                         | 9                                |   | 1                                                          |  
|Unrecognized net loss                                   | 245                              |   | 57                                                         |  
|                                                        |                                  |   |                                                            |  
|Net amount recognized                                   | 143                              |   | 21                                                         |  
|                                                        |                                  |   |                                                            |  
|The amounts recognized in the balance sheet consist
of: |                                  |   |                                                            |  
|Accrued pension liability                               | (95                              | ) | (29                                                        | )
|Intangible asset                                        | 9                                |   | 1                                                          |  
|Other comprehensive income (before tax)                 | 229                              |   | 49                                                         |  
|                                                        |                                  |   |                                                            |  
|Net amount recognized                                   | 143                              |   | 21                                                         |  
|                                                        |                                  |   |                                                            |  

The assets of these plans principally comprise UK and other listed equities, property investments, bank deposits and UK Government index-linked stocks.


F-63

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS
  (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

Additional information required by US GAAP
  in respect of the Groups two principal pension plans  (continued)

The following table sets forth movements in the fair
  value of plan assets:


|                            | Mitchells
      & Butlers
Pension
Plan |   | Mitchells
      & Butlers
      Executive
      Pension
      Plan |  
|--------------------------- | -------------------------------------- | - | ------------------------------------------------------------------ | -
|                            |                                        |   |                                                                    |  
|                            | (£ million)                            |  
|At September 27,
      2003 | 622                                    |   | 203                                                                |  
|Members contributions      | 3                                      |   | 1                                                                  |  
|Company contributions       | 34                                     |   | 10                                                                 |  
|Benefits paid               | (29                                    | ) | (11                                                                | )
|Actual return on assets     | 65                                     |   | 17                                                                 |  
|                            |                                        |   |                                                                    |  
|At September 25, 2004       | 695                                    |   | 220                                                                |  
|Members contributions      | 3                                      |   | 1                                                                  |  
|Company contributions       | 34                                     |   | 8                                                                  |  
|Benefits paid               | (30                                    | ) | (12                                                                | )
|Actual return on assets     | 123                                    |   | 40                                                                 |  
|                            |                                        |   |                                                                    |  
|At October 1, 2005          | 825                                    |   | 257                                                                |  
|                            |                                        |   |                                                                    |  

The following table sets forth movements
  in the projected benefit obligation of the principal plans:


|                                   | Mitchells
      & Butlers
      Pension
      Plan |   | Mitchells
      & Butlers
      Executive
      Pension
      Plan |  
|---------------------------------- | -------------------------------------------------- | - | ------------------------------------------------------------------ | -
|                                   |                                                    |   |                                                                    |  
|                                   | (£ million)                                        |  
|At September 27,
      2003        | 815                                                |   | 253                                                                |  
|Service cost                       | 10                                                 |   | 4                                                                  |  
|Members
      contributions       | 3                                                  |   | 1                                                                  |  
|Interest expense                   | 42                                                 |   | 13                                                                 |  
|Benefits paid                      | (29                                                | ) | (11                                                                | )
|Actuarial gain arising in the year | (13                                                | ) | —                                                                  |  
|                                   |                                                    |   |                                                                    |  
|At September 25, 2004              | 828                                                |   | 260                                                                |  
|Service cost                       | 9                                                  |   | 5                                                                  |  
|Members contributions             | 3                                                  |   | 1                                                                  |  
|Interest expense                   | 45                                                 |   | 14                                                                 |  
|Benefits paid                      | (30                                                | ) | (12                                                                | )
|Actuarial loss arising in the year | 81                                                 |   | 26                                                                 |  
|                                   |                                                    |   |                                                                    |  
|At October 1,
      2005           | 936                                                |   | 294                                                                |  
|                                   |                                                    |   |                                                                    |  

The following pension benefit payments, are expected to be paid:


|            | Mitchells
        & Butlers
        Pension
    Plan |  | Mitchells
        & Butlers
        Executive
        Pension
        Plan | 
|----------- | ---------------------------------------------------- |  | -------------------------------------------------------------------------- | 
|            |                                                      |  |                                                                            | 
|            | (£
        million)                                  | 
|2006        | 31.0                                                 |  | 11.8                                                                       | 
|2007        | 31.9                                                 |  | 12.1                                                                       | 
|2008        | 32.8                                                 |  | 12.5                                                                       | 
|2009        | 33.7                                                 |  | 12.8                                                                       | 
|2010        | 34.6                                                 |  | 13.2                                                                       | 
|2011  2015 | 188.3                                                |  | 69.8                                                                       | 

F-64

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS
  (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

Additional information required by US GAAP
  in respect of the Groups two principal pension plans  (continued)

The percentages of the fair value of total plan
  assets held by major category of plan assets were:


|         | October 1,
      2005 |  | September 25,
      2004 | 
|-------- | --------------------- |  | ------------------------ | 
|         |                       |  |                          | 
|         | **( % )**            
|Equities | 52                    |  | 50                       | 
|Bonds    | 40                    |  | 41                       | 
|Property | 8                     |  | 9                        | 
|         |                       |  |                          | 
|         | 100                   |  | 100                      | 
|         |                       |  |                          | 

Goodwill under US GAAP by reportable segment

|            | October 1,
2005 |  | September 25,
      2004 | 
|----------- | --------------- |  | ------------------------ | 
|            |                 |  |                          | 
|            | (£ million)     | 
|Pubs & Bars | 109             |  | 109                      | 
|Restaurants | 80              |  | 80                       | 
|            |                 |  |                          | 
|Retail      | 189             |  | 189                      | 
|SCPD        |                |  |                         | 
|            |                 |  |                          | 
|            | 189             |  | 189                      | 
|            |                 |  |                          | 

There has been no impairment of goodwill either on the adoption of SFAS 142 or at the time of subsequent impairment tests.


Intangible assets subject to amortization

The estimated aggregate amortization expense in respect of computer software for each of the next five years is £5 million, £4 million, £3 million, £2 million and £1 million. These amounts relate
to assets capitalized at the balance sheet date only and exclude future expenditure.


Additional information required by US GAAP in respect of deferred taxation

The analysis of the deferred taxation liability required by US GAAP is as follows:


|                                                                 | October 1,
      2005 |   | September 25,
      2004 |  
|---------------------------------------------------------------- | --------------------- | - | ------------------------ | -
|                                                                 |                       |   |                          |  
|                                                                 | (£ million)           |  
|Deferred taxation liabilities:                                   |                       |   |                          |  
|Excess
        of book value over taxation value of fixed assets | 141                   |   | 135                      |  
|Deferred
        gains                                           | 49                    |   | 49                       |  
|Other
        temporary differences                              | 2                     |   | 2                        |  
|                                                                 |                       |   |                          |  
|                                                                 | 192                   |   | 186                      |  
|                                                                 |                       |   |                          |  
|Deferred taxation assets:                                        |                       |   |                          |  
|Taxation
        effect of realized and unrealized losses        | (6                    | ) | (6                       | )
|Pensions                                                         | (39                   | ) | (57                      | )
|Derivatives                                                      | (10                   | ) | (3                       | )
|Other
        temporary differences                              | (13                   | ) | (4                       | )
|                                                                 |                       |   |                          |  
|                                                                 | (68                   | ) | (70                      | )
|Valuation allowance                                              | 6                     |   | 6                        |  
|                                                                 |                       |   |                          |  
|                                                                 | 130                   |   | 122                      |  
|                                                                 |                       |   |                          |  
|Of which:                                                        |                       |   |                          |  
|Current                                                          | (7                    | ) | (3                       | )
|Non-current                                                      | 137                   |   | 125                      |  
|                                                                 |                       |   |                          |  
|                                                                 | 130                   |   | 122                      |  
|                                                                 |                       |   |                          |  

F-65

---



Back to Contents

MITCHELLS & BUTLERS PLC

NOTES TO THE FINANCIAL STATEMENTS (Continued)

Note 31  Differences between United Kingdom and United States Generally Accepted Accounting  Principles  (Continued)

Accounting and disclosure of stock-based compensation

FAS 123  Accounting for Stock-Based Compensation, established accounting disclosure standards for stock-based employee compensation plans. The statement gives companies the option of continuing to account for such
costs under the intrinsic value accounting provisions set out in Accounting Principles Board Opinion 25  Accounting for Stock Issued to Employees (APB 25) and related interpretations. The Group has chosen to continue to account for
such costs under APB 25. Had the Group chosen to account for such costs under FAS 123, the Groups pro forma net income and basic and diluted earnings per ordinary share under US GAAP would be as indicated below:


|                                                                                                                   | 53 weeks ended      |                                                      | 52 weeks ended         | 
|------------------------------------------------------------------------------------------------------------------ | ------------------- | ---------------------------------------------------- | ---------------------- | 
|                                                                                                                   |                     |                                                      |                       
|                                                                                                                   | October 1,
    2005 |                                                      | September 25,
    2004 | 
|                                                                                                                   |                     |                                                      |                        | 
|                                                                                                                   |                     | (£ million,
      except per ordinary share amounts) |                       
|Net income:                                                                                                        |                     |                                                      |                        | 
|As reported under
      US GAAP                                                                                    |                     | 121                                                  |                        | 
|Stock-based compensation, net of
      related tax effects,                                                        |                     |                                                      |                        | 
|included
      in the determination of net income as reported                                                      |                     | 7                                                    |                        | 
|Stock-based employee compensation
        expense, under fairvalue
    based method for all awards, net of related |                     |                                                      |                        | 
|tax
      effects                                                                                                  |                     | (5                                                   | )                      | 
|                                                                                                                   |                     |                                                      |                        | 
|Pro forma net income                                                                                               |                     | 123                                                  |                        | 
|                                                                                                                   |                     |                                                      |                        | 
|Basic earnings per ordinary share:                                                                                 |                     |                                                      |                        | 
|As reported under
      US GAAP                                                                                    |                     | £0.24                                                |                        | 
|Pro forma basic earnings per ordinary
      share                                                                  |                     | £0.24                                                |                        | 
|Diluted earnings per ordinary
      share:                                                                         |                     |                                                      |                        | 
|As reported under
      US GAAP                                                                                    |                     | £0.23                                                |                        | 
|Pro forma diluted earnings per ordinary
      share                                                                |                     | £0.24                                                |                        | 

The amounts shown above for stock-based employee compensation expense under fair value accounting have been calculated using the Black-Scholes option pricing model, the Binomial option pricing model or Monte Carlo
simulations. The following assumptions have been used for valuing share options granted by the Group:


|                        | October 1, 2005 |  | September 25, 2004 |  | September 27, 2003 | 
|----------------------- | --------------- |  | ------------------ |  | ------------------ | 
|                        |                 |  |                    |  |                    | 
|                        |                 |  | (%)                |  |                    | 
|Annual dividends        | 3               |  | 4                  |  | 4                  | 
|Expected volatility     | 31              |  | 31                 |  | 23                 | 
|Risk free interest rate | 4               |  | 5                  |  | 4                  | 

In December 2004, the FASB issued
  SFAS No. 123 (R)  Accounting for Stock-Based Compensation.
  SFAS 123(R) replaces SFAS 123 and supersedes APB 25 and becomes effective for
  accounting periods that begin after June 15, 2005. The statement eliminates
  the option to use APB 25s intrinsic value method of accounting which was
  available under FAS 123. Under FAS 123(R), stock-based compensation is recognized
  in the financial statements based on the grant-date fair value of the awards
  (with limited exceptions). The fair value method is similar to the method in
  FAS 123 and an indication of its impact on the Group is provided by the disclosures
  given above.


In May 2005, the FASB issued SFAS No. 154 
  Accounting Changes and Error Corrections. SFAS 154 replaces APB
  opinion No. 20  Accounting Changes and SFAS No. 3  
  Reporting Accounting Changes in Interim Financial Statements and becomes
  effective for accounting periods that begin after 15 December 2005. APB 20 previously
  required that most voluntary changes in accounting principle be recognized by
  including, in net income of the period of the change, the cumulative effect
  of changing to the new accounting principle. SFAS 154 requires retrospective
  application to prior periods financial statements of changes in accounting
  principle, unless it is impracticable to determine either the period specific
  effects or the cumulative effect of the change. The adoption of SFAS 154 is
  not expected to have a material effect on the results or net assets of the group.


F-66

---



Back to Contents

SCHEDULE I

MITCHELLS & BUTLERS PLC

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

As the restricted net assets of Mitchells & Butlers Retail Limited (see Note 19 of the Notes to the Financial Statements) represent more than 25% of the consolidated net assets of the
Group at October 1, 2005, the following condensed financial information is presented in respect of Mitchells & Butlers plc, the parent company of the Group.  Mitchells & Butlers
plc was incorporated on October 2, 2002.


Profit and loss account

|                                                     | 53 weeks ended                   |   | 52 weeks ended                   |  
|---------------------------------------------------- | -------------------------------- | - | -------------------------------- | -
|                                                     |                                 
|October 1,
    2005                                  | September 25,
    2004 restated* |   | September 27,
    2003 restated*
|                                                     |                                  |   |                                  |  
|                                                     | (£million)                       |  
|Administration expenses                              | —                                |   | (5                               | )
|                                                     |                                  |   |                                  |  
|Operating profit/(loss)                              | —                                |   | (5                               | )
|Dividends received from consolidated subsidiaries    | 117                              |   | 54                               |  
|Separation costs                                     | —                                |   | —                                |  
|Amounts written off investments                      | (1                               | ) | (2                               | )
|                                                     |                                  |   |                                  |  
|Profit/(loss) on ordinary activities before interest | 116                              |   | 47                               |  
|Interest receivable                                  | 7                                |   | 13                               |  
|Interest payable and similar charges                 | (3                               | ) | (17                              | )
|                                                     |                                  |   |                                  |  
|Profit/(loss) on ordinary activities before taxation | 120                              |   | 43                               |  
|Tax credit on profit/(loss) on ordinary activities   | —                                |   | 2                                |  
|                                                     |                                  |   |                                  |  
|Earnings available for shareholders                  | 120                              |   | 45                               |  
|Dividends                                            | (53                              | ) | (550                             | )
|                                                     |                                  |   |                                  |  
|Retained profit/(loss)                               | 67                               |   | (505                             | )
|                                                     |                                  |   |                                  |  
|                                                     |                                  |   |                                  |  

|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see page SH1-2).
|- | -----------------------------------------------------------------------------------

Statement of total recognized gains and losses

|                                                     | 53 weeksended  |                |               |  
|---------------------------------------------------- | -------------- | -------------- | ------------- | -
|52 weeks ended                                      
|                                                     |               
|October 1,                                           | September 25,  |                | September 27,
|2005                                                 | 2004 restated* | 2003 restated*
|                                                     |                |                |               |  
|                                                     | £million)      |               
|Earnings available for shareholders                  | 120            |                | 45            |  
|Actuarial (loss)/gain on pension schemes             | (7             | )              | 39            |  
|Deferred tax relating to actuarial (loss)/gain       | 2              |                | (12           | )
|Exchange differences                                 | —              |                | (1            | )
|                                                     |                |                |               |  
|Total recognized gains/(losses) for the year         | 115            |                | 71            |  
|                                                     |                |                |               |  
|Prior year adjustment on the full adoption of FRS 17 | (219           | )              |               |  
|                                                     |                |                |               |  
|Total recognized losses since previous year end      | (104           | )              |               |  
|                                                     |                |                |               |  
|                                                     |                |                |               |  

|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see page SH1-2).
|- | -----------------------------------------------------------------------------------

|                                               | October 1, 2005 |   | September 25,2004 restated* |  
|---------------------------------------------- | --------------- | - | --------------------------- | -
|Balance sheet                                 
|                                               |                 |   |                             |  
|                                               | (£million)      |  
|Fixed asset investments                        | 1,739           |   | 1,740                       |  
|                                               |                 |   |                             |  
|Current assets:                                |                 |   |                             |  
|Debtors                                        | 140             |   | 141                         |  
|Investments                                    | 2               |   | 77                          |  
|Cash at bank and in hand                       | 79              |   | 66                          |  
|                                               |                 |   |                             |  
|                                               | 221             |   | 284                         |  
|Creditors: amounts falling due within one year | (1,566          | ) | (1,596                      | )
|                                               |                 |   |                             |  
|Net current liabilities                        | (1,345          | ) | (1,312                      | )
|Net assets before pension liabilities          | 394             |   | 428                         |  
|Net pension liabilities                        | (99             | ) | (114                        | )
|                                               |                 |   |                             |  
|Net assets                                     | 295             |   | 314                         |  
|                                               |                 |   |                             |  
|Capital and reserves:                          |                 |   |                             |  
|Called up share capital                        | 35              |   | 37                          |  
|Share premium account                          | 14              |   | 12                          |  
|Capital redemption reserve                     | 2               |   | —                           |  
|Profit and loss account reserve                | 244             |   | 265                         |  
|                                               |                 |   |                             |  
|Equity shareholders funds                     | 295             |   | 314                         |  
|                                               |                 |   |                             |  
|                                               |                 |   |                             |  

|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see page SH1-2).
|- | -----------------------------------------------------------------------------------

SH1 - 1

---



Back to Contents

SCHEDULE
I

MITCHELLS & BUTLERS PLC

CONDENSED FINANCIAL INFORMATION OF REGISTRANT
        (CONTINUED)

Cash flow statement

|                                                                                  |                |      |               |   |       |  
|--------------------------------------------------------------------------------- | -------------- | ---- | ------------- | - | ----- | -
|53 weeks ended                                                                    | 52 weeks ended
|                                                                                  |               
|October 1,                                                                        | September 25,  |      | September 27,
|2005                                                                              | 2004           | 2003
|                                                                                  |                |     
|                                                                                  |                |      | (£million)    |  
|Net cash outflow from operating activities                                        | (30            | )    | (37           | ) | (3    | )
|Dividends received from consolidated subsidiaries                                 | 117            |      | 54            |   | —     |  
|Returns on investments and servicing of finance                                   | 1              |      | (4            | ) | (41   | )
|Equity dividends paid                                                             | (50            | )    | (545          | ) | —     |  
|                                                                                  |                |      |               |   |       |  
|Net cash inflow/(outflow) before management
    of liquid resources and financing | 38             |      | (532          | ) | (44   | )
|Management of liquid resources                                                    | 75             |      | (76           | ) | (1    | )
|Financing:                                                                        |                |      |               |   |       |  
|Issue of ordinary share capital                                                   | 2              |      | 8             |   | 4     |  
|Purchase of own shares                                                            | (101           | )    | (12           | ) | —     |  
|Proceeds on release of own shares held                                            | 14             |      | 1             |   | —     |  
|Borrowings drawn down under syndicated
    loan facility                          | —              |      | 25            |   | 1,350 |  
|Borrowings repaid in respect of syndicated
    loan facility                      | —              |      | (1,243        | ) | (132  | )
|Cash payment to former Six Continents
    PLC shareholders                        | —              |      | —             |   | (702  | )
|Inter-company funding                                                             | (26            | )    | 1,924         |   | (504  | )
|                                                                                  |                |      |               |   |       |  
|Increase/(decrease) in cash and overdrafts                                        | 2              |      | 95            |   | (29   | )
|                                                                                  |                |      |               |   |       |  

Notes to the condensed financial statements

The
      parent only financial statements should be read in conjunction with the Companys
      consolidated financial statements.


The adoption of FRS17 Retirement Benefits under UK GAAP has resulted in the restatement of prior year comparatives.  Earnings under UK GAAP for fiscal 2004 and fiscal 2003 are £7 million and £8
million lower than previously reported respectively. Net assets under UK GAAP at September 25, 2004 are £219 million lower than previously reported.


The Companys investment in its subsidiaries is stated at cost less provision for permanent diminution in value. Investments in overseas holdings are denominated in foreign currencies and exchange differences arising
on their translation are taken directly to reserves along with any exchange differences arising on foreign currency borrowings hedging those investments.


The Company does not have any unconsolidated subsidiaries.


The Company does not have any long-term debt obligations with external third parties. Amounts due to other group companies are repayable on demand.


The Company has contingent liabilities as described in Note 29 of the Notes to the Financial Statements.


The Company is party to a composite guarantee with other Group companies in connection with its day-to-day cash pooling arrangements. Any potential liability is capped at the level of in hand balances held by the Company
and any net overdraft of the group of companies subject to the arrangement. At October 1, 2005, the Company had an overdraft of £11 million (2004 £3 million) and the group of companies had a small net cash balance. Therefore, at October 1,
2005, the Company did not have a contingent liability under the composite guarantee.


Cash dividends paid to Mitchells & Butlers plc from its subsidiaries are shown in the cash flow statement above. There were no dividends receivable at either October 1, 2005 or September 25, 2004. The above information is prepared in accordance
      with accounting principles generally accepted in the United Kingdom (UK
      GAAP) which differ from those generally accepted in the United States (US
      GAAP). The significant differences as they apply to the Group are summarized
      in Note 31 of Notes to the Financial Statements. An additional difference
      arises in respect of the parent only financial statements as investments
      in subsidiaries would be accounted for on an equity basis under US GAAP.
 The significant adjustments required to convert
      earnings available for shareholders in accordance with UK GAAP to net income
      in accordance with US GAAP and shareholders funds in accordance with
      UK GAAP to shareholders equity in accordance with US GAAP are presented
      below, together with comprehensive income under US GAAP and a condensed
      cash flow statement presented under US GAAP.


SH1 - 2

---



Back to Contents

SCHEDULE I

MITCHELLS & BUTLERS PLC

CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)

Notes to the condensed financial statements  (continued)

Income

|                                                                         | 53 weeks ended |                | 52 weeks ended |  
|------------------------------------------------------------------------ | -------------- | -------------- | -------------- | -
|                                                                         |               
|October 1,                                                               | September 25,  |                | September 27, 
|2005                                                                     | 2004 restated* | 2003 restated*
|                                                                         |                |               
|                                                                         |                |                | (£million)     |  
|Earnings
          available for shareholders in accordance with UK GAAP | 120            |                | 45             |  
|Adjustments:                                                             |                |                |                |  
|Equity in net
        income of subsidiaries                             | 20             |                | 82             |  
|Pension costs                                                            | (17            | )              | (16            | )
|Deferred taxation                                                        | (2             | )              | 11             |  
|                                                                         |                |                |                |  
|                                                                         | 1              |                | 77             |  
|                                                                         |                |                |                |  
|Net income in accordance with US
        GAAP                            | 121            |                | 122            |  
|                                                                         |                |                |                |  
|                                                                         |                |                |                |  

|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see page SH1-2).
|- | -----------------------------------------------------------------------------------

Comprehensive income

|                                                                                               | 53 weeks ended |      | 52 weeks ended |  
|---------------------------------------------------------------------------------------------- | -------------- | ---- | -------------- | -
|                                                                                               |               
|October 1,                                                                                     | September 25,  |      | September 27, 
|2005                                                                                           | 2004           | 2003
|                                                                                               |                |     
|                                                                                               |                |      | (£million)     |  
|Net income in accordance with US GAAP                                                          | 121            |      | 122            |  
|Other comprehensive income:                                                                    |                |      |                |  
|Transfer
      of minimum pension liability on April 1, 2003, net
      of tax of
£109 million | —              |      | —              |  
|Minimum pension liability, net of tax of £5 million (2004
£13 million,
2003 £8 million)        | 11             |      | 31             |  
|Equity in other comprehensive income of subsidiaries                                           | (18            | )    | (9             | )
|                                                                                               |                |      |                |  
|Comprehensive income in accordance with US GAAP                                                | 114            |      | 144            |  
|                                                                                               |                |      |                |  

Movements in other comprehensive income amounts (net of related tax) are as follows:


|                      | Minimum pension
        liability
        adjustment |   | Equity in other
        comprehensive
        income amounts
        of subsidiaries |   | Total |  
|--------------------- | ---------------------------------------------------- | - | ------------------------------------------------------------------------------------ | - | ----- | -
|                      |                                                      |   |                                                                                      |   |       |  
|                      |                                                      |   | (£million)                                                                           |   |       |  
|At October 2, 2002    | —                                                    |   | —                                                                                    |   | —     |  
|Movement in the year  | (236                                                 | ) | 7                                                                                    |   | (229  | )
|                      |                                                      |   |                                                                                      |   |       |  
|At September 27, 2003 | (236                                                 | ) | 7                                                                                    |   | (229  | )
|Movement in the year  | 31                                                   |   | (9                                                                                   | ) | 22    |  
|                      |                                                      |   |                                                                                      |   |       |  
|At September 25, 2004 | (205                                                 | ) | (2                                                                                   | ) | (207  | )
|Movement in the year  | 11                                                   |   | (18                                                                                  | ) | (7    | )
|                      |                                                      |   |                                                                                      |   |       |  
|At October 1, 2005    | (194                                                 | ) | (20                                                                                  | ) | (214  | )
|                      |                                                      |   |                                                                                      |   |       |  

SH1 - 3

---



Back to Contents

SCHEDULE I

MITCHELLS & BUTLERS PLCCONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)


|Shareholders equity                                       |  | October 1,
      
2005 |     | September 25,
2004 restated* | 
|---------------------------------------------------------- |  | ---------------------- | --- | ---------------------------- | 
|                                                           |  |                        |     |                              | 
|                                                           |  | (£million)             |    
|Shareholders funds as reported in accordance with UK GAAP |  |                        | 295 |                              | 
|Adjustments:                                               |  |                        |     |                              | 
|Pension intangible asset                                   |  |                        | 10  |                              | 
|Fixed asset investments                                    |  |                        | 425 |                              | 
|Non-current assets:                                        |  |                        |     |                              | 
|Deferred taxation                                          |  |                        | 39  |                              | 
|Inter-company balances                                     |  |                        | 14  |                              | 
|Current assets:                                            |  |                        |     |                              | 
|Cash and cash equivalents                                  |  |                        | 81  |                              | 
|Cash at bank and in hand                                   |  |                        | (79 | )                            | 
|Current asset investments                                  |  |                        | (2  | )                            | 
|Creditors: amounts falling due within one year:            |  |                        |     |                              | 
|Proposed dividends                                         |  |                        | 37  |                              | 
|Provisions for liabilities and charges:                    |  |                        |     |                              | 
|Accrued pension cost                                       |  |                        | (25 | )                            | 
|                                                           |  |                        |     |                              | 
|                                                           |  |                        | 500 |                              | 
|                                                           |  |                        |     |                              | 
|Shareholders equity in accordance with US GAAP            |  |                        | 795 |                              | 
|                                                           |  |                        |     |                              | 
|                                                           |  |                        |     |                              | 

|* | Restated on the full adoption of FRS 17 Retirement
    Benefits (see page SH1-2).
|- | -----------------------------------------------------------------------------------
| 

|Statement of cash flows                                  |  | 53 weeks ended       |      | 52 weeks ended      | 
|-------------------------------------------------------- |  | -------------------- | ---- | ------------------- | 
|                                                         |  |                      |      |                     | 
|                                                         |  | October 1, 
    2005 |      | September
25,
 2004 | 
|                                                         |  |                      |      |                     | 
|                                                         |  | (£million)           |     
|Net cash provided/(used) by operating activities         |  |                      | 88   |                     | 
|Net cash released from/(used in) investing activities    |  |                      | 20   |                     | 
|Financing activities:                                    |  |                      |      |                     | 
|Issue of ordinary share capital                          |  |                      | 2    |                     | 
|Purchase of own shares                                   |  |                      | (101 | )                   | 
|Proceeds on release of own shares held                   |  |                      | 14   |                     | 
|Equity dividends paid                                    |  |                      | (50  | )                   | 
|Increase/(decrease) in overdrafts                        |  |                      | 11   |                     | 
|Borrowings drawn down under syndicated loan facility     |  |                      |     |                     | 
|Borrowings repaid in respect of syndicated loan facility |  |                      |     |                     | 
|Cash payment to former Six Continents PLC shareholders   |  |                      |     |                     | 
|Inter-company funding                                    |  |                      | (26  | )                   | 
|                                                         |  |                      |      |                     | 
|Net cash used in financing activities                    |  |                      | (150 | )                   | 
|                                                         |  |                      |      |                     | 
|Net change in cash and cash equivalents                  |  |                      | (42  | )                   | 
|Opening cash and cash equivalents                        |  |                      | 123  |                     | 
|                                                         |  |                      |      |                     | 
|Closing cash and cash equivalents                        |  |                      | 81   |                     | 
|                                                         |  |                      |      |                     | 
|Supplemental disclosures of cash flow information:       |  |                      |      |                     | 
|Interest paid                                            |  |                      | 3    |                     | 
|Taxes paid                                               |  |                      |     |                     | 

SH1-4

---



Back to Contents

SCHEDULE II

MITCHELLS & BUTLERS PLCVALUATION AND QUALIFYING ACCOUNTS

|Description                           |  |            | Balance at
beginning
of period |  |  | Additions
charged to
costs and
expenses |  |  | Bad debts
written
off |   |  | Balance at
 end of
period | 
|------------------------------------- |  | ---------- | ------------------------------ |  |  | --------------------------------------- |  |  | --------------------- | - |  | ------------------------- | 
|                                      |  |            |                                |  |  |                                         |  |  |                       |   |  |                           | 
|                                      |  | (£million) |                               
|53 weeks ended October 1, 2005        |  |            |                                |  |  |                                         |  |  |                       |   |  |                           | 
|Provisions for bad and doubtful debts |  |            | 2                              |  |  |                                        |  |  |                      |   |  | 2                         | 
|52 weeks ended September 25, 2004     |  |            |                                |  |  |                                         |  |  |                       |   |  |                           | 
|Provisions for bad and doubtful debts |  |            | 3                              |  |  |                                        |  |  | (1                    | ) |  | 2                         | 
|52 weeks ended September 27, 2003     |  |            |                                |  |  |                                         |  |  |                       |   |  |                           | 
|Provisions for bad and doubtful debts |  |            | 2                              |  |  | 1                                       |  |  |                      |   |  | 3                         | 

SH2-1

---



Back to Contents

CERTIFICATION

|I, Tim Clarke, certify that:
|----------------------------
|                            
|1.                          
|                            
|                            
|2.                          
|                            
|                            
|3.                          
|                            
|                            
|4.                          
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|5.                          
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            
|                            

/s/ Tim Clarke.................................................................  Chief Executive


Date: February 28, 2006

C-1

---



Back to Contents

CERTIFICATION



|I, Karim Naffah, certify
    that:
|----------------------------------
|                                  
|1.                                
|                                  
|2.                                
|                                  
|3.                                
|                                  
|4.                                
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|                                  
|5.                                
|                                  
|                                  
|                                  
|                                  
|                                  

Date: February 28, 2006

| | /s/ Karim Naffah                                
| | ------------------------------------------------
| |                                                 
| | ------------------------------------------------
| | Finance Director                                

C-2

---



Back to Contents

CERTIFICATION

Pursuant to 18 U.S.C. §1350, the undersigned officers of Mitchells & Butlers plc (the Company), hereby certify that the Companys Annual Report on Form 20-F for the fiscal year ended October 1,
2005 (the Report) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.

|                        | /s/ Tim Clarke                                  
|----------------------- | ------------------------------------------------
|                        |                                                 
|                        | ------------------------------------------------
|                        | Tim Clarke                                      
|                        | Chief Executive                                 
|                        |                                                 
|                        |                                                 
|                        | /s/ Karim Naffah                                
|                        |                                                 
|                        | ------------------------------------------------
|                        | Karim Naffah                                    
|                        | Finance Director                                
|                        |                                                 
|Dated February 28, 2006 |                                                 

The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.

C-3


---



Back to Contents

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

|                        | MITCHELLS & BUTLERS PLC                         
|----------------------- | ------------------------------------------------
|                        | (Registrant)                                    
|                        |                                                 
|                        | By: /s/ Tim Clarke                              
|                        |                                                 
|                        | ------------------------------------------------
|                        | Name: Tim Clarke                                
|                        | Title: Chief Executive                          
|                        |                                                 
|Date: February 28, 2006 |                                                 

S-1

---