SSP GROUP PLC Annual Report and Accounts 2017 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 2,500 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 450 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 58 Independent auditor’s report 2 Chairman’s statement 28 Corporate Governance report 62 Consolidated income statement 3 Chief Executive’s statement 33 Audit Committee report 63 Consolidated statement of other 4 Our business 37 Statement by the Chairman of the comprehensive income 6 Our business model Remuneration Committee 64 Consolidated balance sheet 8 Our strategy 38 Annual report on remuneration 65 Consolidated statement of changes in equity 9 Financial review 45 Directors’ remuneration policy 66 Consolidated cash flow statement 14 Key performance indicators 52 Directors’ report 67 Notes to consolidated financial statements 16 Risk management and principal risks 57 Statement of Directors’ responsibilities 100 Company balance sheet 23 Sustainability report 101 Notes to the Company financial statements 112 Company information SSP GROUP Annual Report and Accounts 2017 STRATEGIC REPORT HIGHLIGHTS Revenue +. ,.m (year-on-year at constant currency ) Constant currency increase +. + . + . + . +. ,.m + . , .m ,. m + . ,.m +. ,.m Flat +. Actual currency Actual Underlying operating profit Operating profit +. .m .m (year-on-year at constant currency ) Constant currency increase +. + . + . + . + . .m +. .m .m +. .m +. . m +. +. Actual currency Actual OUR SCALE More than c. 35,000 c. 1,000,000 brands employees customers daily 450 Over Over c. 600 sites 2,500 units 30 countries 1 Constant currency is based on weighted average exchange rates during the previous financial year. 2 Stated on an underlying basis which excludes the revaluation of the obligation to acquire an additional 16% ownership share of TFS by the end of calendar year 2018 and the amortisation of intangible assets arising on the acquisition of the SSP business in 2006. In the prior year the underlying basis only excluded the amortisation of intangible assets arising on the acquisition of the SSP business in 2006. Other notes 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 and 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 and 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 and Accounts 2017 CHAIRMAN’S STATEMENT Another year of delivery in 2017 I am pleased to report that the Group has delivered another strong set of annual results, with revenue growing by 19.5% to £2,379m and underlying earnings per share increasing by 31% to 20.3 pence per share. We have continued to deliver good like-for-like sales growth in our existing business, as well as a significant increase in 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, further extending our presence in North America and in the Rest of the World, where there are significant structural growth opportunities. Additionally, this year we have entered the Indian market through a joint venture, and the initial performance of this business has been encouraging. In 2017 we increased our capital expenditure to a record £115m , reflecting the strong increase in net contract gains. Our approach to new business is disciplined and focuses on ensuring that we generate good returns on investment. Our success is underpinned by our We announced a ability to deliver an attractive brand line-up and innovative bespoke concepts for our clients and customers. We continue to invest in our people, strengthening central, regional and local number of important teams around the world. contract wins in the Dividend As a result of the Group’s strong performance, I am pleased to announce that the Board has year, developing our recommended a final dividend of 4.9 pence per share (subject to shareholder approval at the Annual General Meeting in February 2018), making a total dividend for the year of 8.1 pence presence across the per share, which is at the top end of the dividend payout ratio range we announced at the time of IPO. The Board also proposes a special dividend of approximately £100m which will world, particularly be in addition to the final dividend for the year ended 30 September 2017. This reflects our in North America confidence in the future of the business and our desire to maintain an efficient balance sheet. Sustainability and Asia. SSP continues to be committed to operating sustainably in its markets and to responsibly manage those environmental and social issues which have been identified as material to our business. We have made further good progress in the year in the priority areas as set out on pages 23 to 25. 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 Looking forward, we have secured some important new business wins, which means our pipeline is encouraging. Increasing passenger numbers around the world, both in the airport and rail sectors, provide significant structural growth opportunities. I am confident that SSP can continue to benefit from these trends and deliver sustainable value creation for shareholders. With this in mind, the Board looks forward to delivering another good performance in the year ahead. Vagn Sørensen Chairman 21 November 2017 2 SSP GROUP Annual Report and Accounts 2017 STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT Overview The Group delivered a good performance in the year, driven by like-for-like sales growth, new contract openings across the world and the ongoing implementation of our programme of operational improvements. We are continuing to invest in the development of the business and to bring new brands and concepts to our clients and customers. We have made further good progress in the development of the business in North America and Asia Pacific, and the first year’s performance of our joint venture in India has been encouraging. Strong financial results The financial performance of the Group is presented on an underlying basis, for which the statutory reported results are adjusted for the impact of foreign exchange, the amortisation of intangible assets created on the acquisition of the SSP business in 2006 and the revaluation of the obligation to acquire an additional share of TFS by the end of the 2018 calendar year. The statutory reported performance of the Group is explained in the financial review, with detailed reconciliation between statutory and underlying performance provided on page 15. The Group delivered a strong financial performance in 2017, with underlying operating profit Significant structural increasing by 27.0% (on a constant currency basis) to £162.9m, and with a constant currency increase, excluding TFS, in the operating margin of 50 bps. The consolidation of TFS added a growth opportunities further 30 bps, bringing the Group margin to 6.8%. in our market, and Total revenue increased by 11.7% on a constant currency basis, including like-for-like sales growth of 3.1%, net contract gains of 6.0% and a negative impact of 0.3% from the our programme of additional leap year day in 2016. The TFS business contributed a further 2.9% to revenue. Like-for-like growth in the air sector has again been stronger than the rail sector, driven by strategic initiatives, increasing passenger numbers in most of our markets. leave us well placed Net contract gains were 6.0% in the year, an encouraging increase from last year’s gains of 1.7%. We saw very strong contributions from North America and the Rest of the World, to continue to reporting net gains of c.23% and c.18% respectively. Significant new openings at Chicago Midway and JFK T7 airports in North America, and in Hong Kong and China in the Rest of the deliver long-term World, have contributed to this strong performance. We are encouraged by the pipeline of new contracts. During the year we won a number of sustainable value for significant new contracts, including at airports in Seattle, Los Angeles and Boston in North our shareholders. America, and at Cebu in the Philippines. The strong operating margin improvement of 50 bps reflects the like-for-like sales growth and further encouraging progress on our strategic initiatives.