SSP Group plc Annual Report and Accounts 2016 Annual Report and Accounts The Food Travel Experts SSP GROUP PLC Annual Report & Accounts 2016 SSP AT A GLANCE SSP is a leading operator of food and beverage outlets in travel locations in over 30 countries in the United Kingdom, Europe, North America, Asia Pacific and the Middle East. As ‘The Food Travel Experts’ we operate over 2,000 outlets from quick service to fine dining, and serve, on average, one million customers each day. We have a deep understanding of the diverse needs of travellers and operate a broad portfolio of more than 400 brands and concepts, including coffee shops, sandwich bars, bakeries, casual and fine-dining restaurants, as well as convenience and retail outlets. These include international and local high street brands, through to our own proprietary brands and bespoke restaurant concepts. All of our brands are developed or tailored to be run in operationally demanding, high-volume travel locations, in order to meet the specific needs of our clients and customers in the travel sector. CONTENTS Strategic Report Corporate Governance Financial Statements 1 Highlights 26 Board of Directors 57 Independent Auditor’s Report 2 Chairman’s Statement 28 Corporate Governance Report 60 Consolidated Income Statement 3 Chief Executive’s Statement 32 Audit Committee Report 61 Consolidated Statement of Other 4 Our Business 36 Statement by the Chairman of the Comprehensive Income 6 Our Business Model Remuneration Committee 62 Consolidated Balance Sheet 8 Our Strategy 37 Annual Report on Remuneration 63 Consolidated Statement of Changes in Equity 9 Financial Review 44 Directors’ Remuneration Policy 64 Consolidated Cash Flow Statement 14 Key Performance Indicators 51 Directors’ Report 65 Notes to Consolidated Financial Statements 15 Alternative Performance Measures 56 Statement of Directors’ Responsibility 96 Company Balance Sheet 16 Risk Management and Principal Risks 96 Company Statement of Changes in Equity 23 Sustainability Report 97 Notes to the Company Financial Statements ibc Company Information SSP GROUP Annual Report & Accounts 2016 STRATEGIC REPORT HIGHLIGHTS Revenue £1,990.3m +5.0% ( year on year at constant currency1) Constant currency1 increase +3.3% +3.7% +4.0% +4.3% +5.0% £1,990.3m £1,832.9m £1,737.5m £1,827.2m £1,827.1m +8.6% +0.3% +1.0% +5.2% Flat Actual currency Actual 2012 2013 2014 2015 2016 Underlying operating profit2 Operating profit +18.2% £121.4m 1 £119.5m ( year on year at constant currency ) Constant currency1 increase +21.7% +15.4% +20.8% +17.6 % +18.2% £121.4m +24.6% £97.4m £88.5m +10.1% £78.8m +12.3% £66.7m +18.1% +17.0% Actual currency Actual 2012 2013 2014 2015 2016 Operating profit £52.1m £67.2m £40.0m £92.2m £119.5m +0.9% +29.0% -40.5% +130.1% +29.6% OUR SCALE More than c. 30,000 c. 1,000,000 400 brands employees customers daily Over Over c.600 sites 2,000 units 30 countries 1 Constant currency is based on weighted average exchange rates during the previous financial year. 2 Stated on an underlying basis excluding exceptional items and amortisation of intangible assets arising on the acquisition of the SSP business in 2006. Like-for-like sales represent revenues generated in an equivalent period in each financial year in outlets which have been open for a minimum of 12 months. Like-for-like sales are presented on a constant currency basis. Net contract gains/(losses) represent the net year on year revenue impact from new outlets opened and existing units closed in the past 12 months. Net contract gains/(losses) are presented on a constant currency basis. Free cash flow represents the net cash flows from operating activities less capital expenditure, net cash flows to and from associates/non-controlling interests, acquisition and financing costs. Please refer to page 15 for supporting reconciliations from SSP Group plc’s statutory reported results to these performance measures. 1 STRATEGIC REPORT SSP GROUP Annual Report & Accounts 2016 CHAIRMAN’S STATEMENT Another year of delivery in 2016 I am pleased to report that the Group has delivered another strong set of annual results, with revenue growing by 8.6% to £1,990m and earnings per share increasing by 36% to 15.2 pence per share. We continued to deliver good like-for-like sales growth in our existing business, as well as increasing net contract gains, which are strengthening our presence across the world. Allied to this, our strategic initiatives have delivered further operational improvements and margin growth. We announced a number of important contract wins in the year, which will extend our presence in the growing North American and Asia Pacific markets. In October 2016, we announced our entry into the fast growing Indian travel market, with our agreement to create a joint venture in Travel Food Services, a leading operator of food and beverage concessions in travel locations in India. In 2016, we invested a further £96m into the business, which will support the delivery of sustainable future growth. Our investment programme is building an increasingly attractive portfolio of brands and concepts for our customers. We are also investing in our people, We announced strengthening central, regional and local teams around the world. At the same time, the cash generative nature of our business, together with strict financial controls, has enabled us to a number of further reduce net debt, facilitating continuing growth in the years to come. Looking forward, in addition to our recent contract wins and a healthy pipeline of important business opportunities, increasing passenger numbers around the world, both in the airport and development wins in rail sectors, give us confidence in the long-term outlook in our principal markets. Dividend the year, which will As a result of the Group’s strong performance, and in line with the progressive policy outlined at the time of our IPO, I am pleased to announce that the Board has recommended a final extend our presence dividend of 2.9 pence per share (subject to shareholder approval at the Annual General Meeting on 13 March 2017), making a total dividend for the year of 5.4 pence per share. in the growing Sustainability SSP continues to be committed to operating sustainably in its markets and to responsibly North American and managing those environmental and social issues which have been identified as material to our business. Our progress during 2016 in the main areas we have identified is set out on Asia Pacific markets. pages 23 to 25. We have made further good progress in the year. Our employees and stakeholders The strength of the Group is principally due to our employees’ skills, experience and dedication. On behalf of the Board, I would like to thank all of our employees for their contribution during the year. Outlook I am confident that SSP is well placed to benefit from the underlying positive trends in our markets and deliver further revenue growth and margin improvement, as well as continued returns to shareholders. With this in mind, the Board looks forward to delivering another good performance in the year ahead. Vagn Sørensen Chairman 28 November 2016 2 SSP GROUP Annual Report & Accounts 2016 STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT Overview The Group delivered a good performance, driven by another year of like-for-like sales growth, new contract openings across the world and the continued successful implementation of our programme of strategic initiatives. We are continuing to invest in the growth and development of the business and to bring exciting new brands and concepts to our clients and customers. We are particularly pleased by the pace of development in North America and Asia Pacific, and the good progress of our strategic initiatives in the UK. Whilst the picture in Continental Europe remains mixed, we have managed the cost base effectively and are encouraged by the improved operational performance in many of our larger countries. Strong financial results The financial performance of the Group is explained on an underlying basis, which is based on the statutory reported results adjusted for the effects of foreign exchange and excluding the amortisation of intangible assets created on the acquisition of the SSP business in 2006. The statutory reported performance of the Group is explained in the financial review, with a detailed reconciliation between statutory and underlying performance provided on page 15. The Group delivered a strong financial performance in 2016, with underlying operating profit increasing by 18.2% (on a constant currency basis) to £121.4m, and with an increase in the Significant structural operating margin of 70 bps to 6.1%. growth opportunities Total revenue increased by 5.0% (on a constant currency basis), including like-for-like sales growth of 3.0%, net contract gains of 1.7% and a further 0.3% arising from the additional and our programme leap year day. Overall, like-for-like sales in the air sector grew more strongly than in rail, driven by the continued increase in passenger numbers throughout the year. Following the terrorist to deliver operational incidents in France and Brussels in the first half, trading across our UK and Continental European rail operations remained slightly softer, particularly in the major capital cities. excellence leave Overall net contract gains were up 1.7% in the full year, a significant increase from last year’s growth of 0.6%. Over the year we saw very strong contributions from North America and the us well placed to Rest of the World, reporting net gains of c.13% and 14% respectively, including from new outlets at airports in Houston, Orlando and Montreal in North America, and in Dubai, Beijing continue to deliver and Bangkok in the Rest of the World.