Annual Review 2011 - Tragus Group

tragusgroup.com

Annual Review 2011 - Tragus Group

Annual Review 2011


02

CAFÉ ROUGE

234284

Master Logos

CR_LOGO11_HZ_L_4C.ai

01

AM

21-04-11

CYAN MAGENTA YELLOW BLACK


Tragus is one of the UK’s largest restaurant chain

operators with 295 sites across the country

serving over 21 million meals every year.

Contents

The Story So Far 4

Group Overview and 7

Key Performance Indicators

Chief Executive’s Review 8

Group Financial Review 10

Corporate Social 12

Responsibility

Ownership and 16

Management Structure

Principal Risks and 18

Uncertainties

Financial Risks 19

Corporate Governance 20

Report

Investing in our brands 22

21 million meals served every year

03


04

The key events

in the story so far

■ Formed in 2002 via management

buy-in of Pelican Restaurants and

BrightReasons Restaurants from

Whitbread plc, backed by ECI


Our vision: to be the UK’s best mid-market multi

branded restaurant operator by consistently

delivering great food and service in distinctive

and attractive restaurant surroundings.

Secondary buyout by Legal & General

Ventures in January 2005

■ Majority owned by Blackstone since

December 2006

■ Acquisition of Strada in 2007

■ As at 29th May 2011 Tragus comprises

295 restaurants across four business

divisions

■ Leading portfolio of brands including

Café Rouge, Strada and Bella Italia

Our strategy

• To grow organically

by opening new

restaurants in key

locations across

the UK.

• Continually

developing and

improving our existing

brands through

menu development,

marketing initiatives

and investment in

the estate.

• Improving profi tability

through disciplined

management, the

use of technology

and procurement

initiatives.

• Ongoing investment

in people through

training and

development

programmes.

• Providing excellent

customer service.

• To acquire groups of

sites or brands which

enhance our portfolio.

• Developing

opportunities through

insights into changing

consumer eating

habits.


Year

(May)

Number of

Restaurants

Turnover £’000

Like for Like

Sales growth/

decline % 1

The fi gures in the table above represent the underlying performance of the Group.

¹. LfL sales growth / decline from FY08 onwards represents the key brands of Café Rouge,

Bella Italia and Strada.

2 . FY10 was a 53 week period. The fi gures shown are for an equivalent 52 week basis.

Including the 53rd week, turnover was £277,364k and EBITDA was £47,605k

EBITDA

£’000

FY03 152 95,515 – 9,926

FY04 156 101,912 4.4% 12,823

FY05 159 116,590 9.6% 16,717

FY06 159 129,541 7.7% 22,005

FY07 182 148,704 9.7% 28,201

FY08 269 247,838 3.4% 44,039

FY09 277 261,936 -2.3% 44,157

FY10 2

287 271,981 -1.6% 45,327

FY11 295 277,428 -2.6% 41,207

72

Strada

85

Bella Italia

124

Café Rouge

295 restaurants as at 29th May 2011

Despite another

diffi cult year for

the restaurant industry, in

which consumers faced

further pressures on their

discretionary spending

due to increases in both

direct and indirect taxation,

consumer price infl ation and

concerns about the future,

Tragus continued to increase

its turnover. The business

delivered strong cash fl ows

which were reinvested in

eleven new sites and the

ongoing investment in our

estate including a major

refurbishment project in

Strada. The outlook for

consumer spending

remains challenging.

Graham Turner

Chief Executive Offi cer

October 2011

14

Brasseries

05


06

During the year ended May 11, the Group opened

11 new sites across the three key brands and plans to

open 15 – 20 new sites in the current financial year.


Group

Overview

and Key

Performance

Indicators

Tragus operates its 295

restaurants as four divisions:

Café Rouge (124), Bella

Italia (85), Strada (72) and

Brasseries (14).

The Board of Directors and

Executive Management

receive a wide range of

management information

delivered in a timely manner.

Listed below are the principal

measures of progress that are

reviewed on a regular basis

to monitor the development

of the Group.

Like for like sales

This measure provides an indicator

of the underlying performance of our

existing restaurants and highlights

successful development of our

offerings to best match changing

consumer demands over time. During

the financial year, the group like

for like turnover declined by 2.6% 1

due to the challenging economic

environment and the fact that we

began the extensive refurbishment

of our Strada estate with associated

closure costs.

EBITDA

The Group defines EBITDA as

operating profit before depreciation,

amortisation and non-trading items.

EBITDA serves as a useful proxy for

cash flows generated by operations

and is closely monitored. During the

year the group generated £41.2m

EBITDA.

The ability of the Group to finance its

roll-out programme is aided by strong

cash flows from the existing business

and appropriate bank facilities.

New restaurants

opened

During the year ended May 11, the

Group opened 11 new sites across

the three key brands and plans to

open 15 – 20 new sites in the current

financial year.

The expansion of our brands is a key

driver of the Group’s profitability.

Potential new sites are subject to a

rigorous appraisal process before

they are presented to the Board for

approval. This process ensures we

maintain the quality of sites while the

appropriate quantity is developed.

1 FY11 sales decline represents key brands of

Café Rouge, Bella Italia and Strada.

07


08

A total of eleven new restaurants were opened in

the year under review; eight Café Rouge,

two Bella Italia and one Strada.

Chief

Executive’s

Review

The financial year ended

29th May 2011 saw Tragus

increase turnover in what

continues to be a difficult

period for consumer facing

businesses in the UK.

This represents a resilient

performance given

the current economic

environment.

A total of eleven new restaurants

were opened in the year under

review; eight Café Rouge, two Bella

Italia and one Strada. These included

high profile sites in London, on The

Strand and at The O2 and West India

Quay. They also included a trial site

of a reduced footprint fast casual Café

Rouge concept at Euston station which

opened in January, and has started

well, giving us confidence to roll out

the format at other sites in the future.

The overall trading environment

continued to be challenging during

the year due to weak economic

conditions and associated pressures

on consumer spending. This was

further compounded by some of the

worst winter weather on record that

heavily disrupted the key December

trading period.

Like for like sales for our key brands

declined by 2.6%. In addition to the

aforementioned weak economy

and winter weather, sales were

further affected by the football world

cup at the start of the year and

the temporary closure of 32 Strada

restaurants during the year whilst we

undertook the first phase of a refresh

programme for the brand.

Despite the challenging economic

conditions of the last few years,

significant numbers of consumers

continue to eat away from the home

environment, both as a lifestyle

decision and attracted by the value

for money offerings in the casual

dining sector. The sector continues to

be characterised by high promotional

activity, and we have looked to

maximise the effectiveness of our

offers during less busy times.

During the year we have made

significant investment in a customer

relationship marketing (CRM) platform

which will further enhance our

engagement with customers. New

websites for all 3 key brands were

relaunched during the year and we

have significantly increased our use of

digital marketing and social media.

Inflationary cost pressures increased

during the year and were significantly

higher by the fourth quarter. We

expect this trend to continue

throughout the new financial year. We

continue to keep our menu content

under regular review and, where

possible, have mitigated

cost increases through the regular

re-tendering of our contracts.

Given the encouraging results of our

refreshed brand design for Strada, we

have undertaken a similar review of

the Café Rouge brand. The findings of

this review have been incorporated

into a new brand design which will be

piloted in a number of sites throughout

the current financial year.


We continue to invest heavily in

our estate to ensure that the best

standards of restaurant presentation

and infrastructure are maintained

at all times. In particular we are

investing in our Strada brand over

the coming year to maintain its

contemporary image and high quality

food offering.

Whilst this diffi cult environment is

forecast to continue, we believe that

Tragus is well placed to meet these

challenges due to the strength and

breadth of our brands, our popular

price points and value for money

offerings and the fact that eating

out continues to be a habitual

lifestyle choice.

We expect to open 15 – 20 new

restaurants during the year. We see

considerable potential for growth in

the UK of our key brands Café Rouge,

Strada and Bella Italia.

The casual dining sector continues

to have excellent medium to long

term growth potential and Tragus is

well placed to take advantage of the

opportunities as they arise.

Graham Turner

Chief Executive Offi cer

Tragus Group Ltd

October 2011

Over 16,000 Tragus customers follow us on

Twitter and Facebook

09


10

Group

Financial

Review

The Directors have prepared

the financial statements

on a going concern basis

consistent with their view,

formed after reviewing the

Group’s cash flow forecasts

and trading budgets, and

after making appropriate

enquiries, that the Group is

operationally and financially

robust and will generate

sufficient cash to meet its

borrowing requirements for

the next 12 months.

1 Bank debt is defined as outstanding senior

loans, capital expenditure facility, revolving

credit facility plus accrued interest

2 Net bank debt is defined as bank debt

less cash

The turnover increase of 2% was

driven by: the opening of eleven new

sites during the year and the full year

effect of our FY10 openings offset by

a like for like decrease of 2.6%. Group

EBITDA (excluding non recurring items

and 53rd week) declined by £4.1m,

with the increased turnover being

offset by an increase in cost of sales

and labour costs and an investment

in a new Marketing & Commercial

structure at head office.

Cash flow

Tragus remains highly cash

generative. During the year, net cash

flow from operations was £42.0m of

which £19.6m was reinvested into the

business as capital expenditure. This

included the opening of eleven new

sites and the first phase of the Strada

refurbishment programme.

Tragus’ capital expenditure

programme is targeted at both

maintaining the quality of the

existing estate and investing in

new restaurants. All capital projects

are individually appraised both

operationally and financially and

clear project return targets are set

to assess the viability and priority of

capital expenditure projects.

Bank Borrowings

At the end of the year bank debt 1

was £295.9m compared with £274.0m

at the end of the previous year

reflecting the final £22m drawdown

of the capex facility before it expired

in December. Gross bank debt is

partially offset by cash at bank and

in hand of £50.0m (2010:£16.6m). The

decrease in net bank debt 2 represents

the excess of net cash from operations

after capital expenditure, tax and

interest payments.

Tragus’ bank borrowings are available

under a Facilities Agreement

which was originally put in place

in December 2006 following the

acquisition of the Group by Blackstone

and amended in July 2007 following

the acquisition of Strada. The Facilities

Agreement is long-term and is due for

repayment in 2015-2017.

The Facilities Agreement requires

Tragus to comply with certain

financial covenants. The financial

covenants include annual limitations

on capital expenditure and require the

maintenance of certain minimum ratios

of EBITDA to both net interest payable

and net debt. In addition, there is a

requirement that the net operating

cash flows generated are not less

than Tragus’ cash cost of funding the

bank debt. The Facilities Agreement

is secured by a fixed and floating

charge over certain of the Group’s

assets. Further detail on the Group’s

borrowings is set out in the financial

statements.

In addition to the Facilities Agreement,

Tragus has a revolving facility of £20m,

which is available to finance working

capital requirements and for general

corporate purposes, and a general

acquisition/capital investment facility

of £40m. As at 29 May 2011, the

revolving facility was undrawn and

the acquisition/capital facility was fully

drawn.

Mohan Mansigani

Chief Financial Officer

Tragus Group Ltd

October 2011


The fi nancial highlights for the year

to 29th May 2011

■ Turnover increased by £5.4m from £272.0m* in 2010

to £277.4m in 2011

■ EBITDA of £41.2m

■ Cash generated from operations of £42.0m

■ Capital investment of £19.6m during the year for the opening

of new restaurants, refurbishments, rebranding

and maintenance

■ Cash at bank and in hand at year end of £50.0m

■ Available liquidity of £70.0m including undrawn

amounts under revolving credit facilities

* Excluding 53rd week and non recurring items

Turnover increased by £5.4m from 2010

11


12

Our key brand menus all offer a range of dishes less

than 600 calories including pizza, pasta and steak

dishes alongside a great range of salads.

Corporate

Social

Responsibility

Tragus welcomes its role

in contributing to and

protecting the communities

and environment in which it

operates. We have a number

of initiatives in place in this

area and are continually

looking at new activities

we can introduce. We have

spilt this section into four

main areas: people, healthy

eating, environment and

community.


People

10%

Tragus’ people are the most important

ingredient in our success and we

endeavour to create a working

environment where people will

develop and prosper. Tragus employs

7,300 people and has an Equal

Opportunities Policy which states that

we are fully committed to providing

equal opportunities throughout

employment, from recruitment and

selection to training and promotion of

employees.

We will not permit discrimination

against any employee, customer or

supplier on the grounds of:

• Sex

• Sexual orientation

• Marital status or parental status

• Race

• Colour or creed

• Ethnic or national origin/ nationality

• Religion

• Disability

• Age

We have clear and fair terms of

employment within the company. All

staff members are provided with a

contract of employment and there are

fully documented procedures in place

for disciplinary issues and grievances

raised by employees. Tragus has

recently introduced a code of

business ethics and a Whistleblowing

procedure.

Tragus invests heavily in training

and we have our own in-house

training department. The business

has established successful E-Learning

technology across the business, which

600

allows employees to receive health

and safety, food hygiene, Disability

Discrimination Act, bespoke courses

and company Induction Training.

Customer service training focussing

on our unique Steps of Service is at the

forefront of our training philosophy.

Tragus is committed to promoting

talent from within through structured

company development programmes

for all levels of management.

This includes our in-depth Assistant

Manager Development Programme

and a Senior Restaurant Manager

role designed to provide supported

development for new multi-site

managers.

The increasing size of the

company means that regular

communication is essential. Tragus

has in place a number of channels

of communication including regular

team and area meetings, weekly and

monthly publications and a company

intranet. In addition, the management

board carries out two business

updates a year with all restaurant

managers.

Tragus believes the health and

safety of its staff and customers is of

paramount importance. We have

clear standards and procedures

in place and to enforce these we

employ external auditors as well as

performing regular internal audits.

We apply industry best practice in

terms of disclosure of our tipping and

service charge policies. Full details can

be found on our brand websites.

10% of our meals are under

600 calories

Healthy eating

Healthy eating is a personal choice,

but Tragus acknowledges it has a role

to play in providing customers with a

range of dishes and the information

available to make informed decisions.

All of our menus are designed to

offer customers a number of options,

allowing them to select a healthy

choice if desired.

Our key brand menus all offer a

range of dishes less than 600 calories

including pizza, pasta and steak dishes

alongside a great range of salads.

We welcome feedback on our menus

from our customers as well as nutrition

experts and keep the menus under

constant review accordingly.

We have signed up to the

Government initiative for the industry

‘Responsibility Deal’ and as part of

this have committed to achieving the

recommended salt targets by the end

of 2012.

We have also worked with our

suppliers to remove all artifi cial

hydrogenated trans-fats from our

ingredients and do not use any

genetically modifi ed foods on any of

our menus.

We will publish calorifi c information

by dish for our key brands by autumn

2011 and details of all allergens on

our menus are now available in the

restaurants and on our websites.

13


14

All our menus are designed to provide our

customers with a number of choices, allowing

them to select a healthy option.

Corporate

Social

Responsibility

Environment

Tragus, in partnership with its suppliers,

is working to reduce its impact on the

environment wherever it is practical

to do so. This is a constantly evolving

process and we are continually looking

at new suppliers and working with

our existing ones to find initiatives and

solutions which make both commercial

and environmental sense.

We have categorised the various

initiatives that we have in place into

three areas – waste and recycling,

energy saving, and food and drink -

and are working to implement these as

quickly as possible.

Waste and recycling

We are working to reduce the waste

we send to landfill by recycling more.

• We already recycle in many of our

restaurants, however, we want to

ensure we are recycling as much as

we possibly can and are working to

implement a recycling scheme in

100% of restaurants

• We are working with our suppliers

to reduce the amount of packaging

wherever possible or increase the

amount that can be recycled

• We have a recycling scheme in place

at our head office

• We recycle waste cooking oil in all

restaurants. We are looking at ways

to convert this oil to either electricity

or bio-diesel to run delivery vehicles

• We have started food recycling

through Anaerobic Digestion

• We are reducing the number of

items laundered in our restaurants

on a daily basis, reducing the

amount of water, electricity and the

environmental impact of detergents

• Almost half of our paper & stationery

purchases are fully recycled products

Energy saving

Tragus is a participant in the CRC

Energy Efficiency Scheme. This is a

government led scheme set up with the

intention of reducing CO2 emissions from

qualifying companies.

Tragus is committed to reducing our

energy consumption and related CO2

emissions. The following initiatives have

been implemented in the last 12 months:

• A dedicated Energy Group has been

established comprising of external

consultants, an internal Energy

Manager and members of the

operational management teams

• All restaurant sites have energy saving

initiatives in place to actively manage

the reduction in water and electricity

usage

• State of the art electricity meters are

installed in over 95% of our restaurants.

These meters measure and transmit

energy usage on a half hourly basis

ensuring that reduction targets can be

set and measured

• Trials of restaurant LED lighting

solutions and energy efficient air

conditioning units are underway in

our dedicated energy trial sites. These

sites have extensive energy metering

systems which allow us to carefully

analyse the impact of energy efficient

solutions in our restaurants

Our target for the next 12 months is

to reduce energy consumption in

our restaurants by over 3,200,000

kwh representing a reduction in CO2

emissions of 1,750 tonnes.

Food and drink

• We actively supply filtered tap water

to our customers at Strada

• We have switched 100% of bottled

water supply to Belu which is the UK’s

first carbon neutral water. Belu donate

all profits to Third World water projects


• We are looking at packaging

alternative supply options for some of

our wine, removing large quantities of

glass from our supply chain

• We have reduced the amount of

road miles in our supply chain by

backhauling from suppliers

Community

In 2010/11 our restaurant brands

supported over 30 charitable causes

including 15 National and over 15 local

causes.

Initiatives this year included the support

of National Charities such as Red

Nose Day, Race for Life, Breast Cancer

Awareness, Macmillan Nurses, Help the

Aged, Cancer Research, NSPCC, NDCS,

Alzheimer’s Society, Great Ormond

Street, Marie Curie, Christies, LGF,

Oxfam and Barnardos.

In addition a huge number of charities

were supported at a local level

including Hospice on the Weald, Shelter

(Manchester), Alder Hey (Liverpool),

North West Air Ambulance, Leukemia

Research, La Jolie Ronde & Verona

Elder MBE (Lakeside), Organ repair

at the South Bank, Davis Shepherd

Cricket Foundation (Harborne), Gulshat

Kadyrova Fund (Oxford), St James

Church of England Sports College

(Manchester), Grove House (St Albans)

and local schools and children’s

hospital charities across the country.

The Tragus team from Center Parcs

also undertook to ride the length of

Hadrian’s Wall raising over £1,500 and

the Operations Director for our Brasseries

Division raised over £1,000 for Médecins

Sans Frontières by running the Paris

Marathon.

Towards the end of this fi nancial year a

review of charities to be supported was

undertaken by each of the brands, and

a National Charity initiative has been

adopted for FY12.

Bella Italia introduced an exciting

new range of salads

15


16

Ownership: Tragus Group Limited is incorporated

in England and Wales and is ultimately owned by

investment funds controlled by the Blackstone Group.

Ownership and

Management

Structure

Management

The Company is managed

in the UK by its Board of

Directors (‘The Board’),

comprising a Non-executive

Chairman, three Executive

Directors, an independent nonexecutive

director and three

representatives of Blackstone.

The Board is the company’s

decision making body.

Biographies of the Board

of Directors and Senior

Management are set out here.

Board of Directors

Charles Gurassa

Non-executive Chairman

Charles was appointed Non-executive

Chairman in July 2011. Charles is also

non executive chairman of MACH,

Genesis Housing Group, deputy

chairman of easyJet and a trustee of

the National Trust. Previous roles have

included chairman of Virgin Mobile

plc, LOVEFiLM, Phones4U, Alamo/

National Rent a Car and 7Days Ltd.

His executive career included roles

as chief executive of Thomson Travel

Group plc, executive chairman of TUI

Northern Europe and a director of TUI

AG and as a Director of Passenger &

Cargo business at British Airways. In

addition, he has been a non-executive

director at Whitbread plc and Merlin

Entertainments.

Graham Turner

Chief Executive Officer

Graham became CEO in January

2005. He was previously the

Managing Director of the Unique Pub

Company with some 4,000 leased

pubs in the UK. Graham was part of

the initial management team that

grew the business through acquisitions

and operational improvements. The

Unique Pub Company is now owned

by Enterprise Inns, one of the UK’s

largest pub landlords. Graham is

the Non Executive Chairman of the

National Restaurants Group, a part of

the British Hospitality Association, and

is also the Non Executive Chairman

of the Liberation Group Limited, a pub

and drinks distribution business based

in the Channel Islands.

Mohan Mansigani

Chief Financial Officer

Mohan has previously been Finance

Director of Costa Coffee and TGI

Friday’s and was part of teams that

grew these businesses substantially,

implementing strong systems and

management controls. Prior to this

he held senior roles in Pizza Hut (UK)

Ltd and Grand Met Foods. Mohan is

a fellow of the Institute of Chartered

Accountants of England and Wales

who qualified with Deloitte Touche

London; Mohan joined Tragus as part

of the buy-in from Whitbread in 2002.

James Parsons

Chief Operating Officer

James began his career as a graduate

trainee with Bass Taverns – now

trading as Mitchells & Butlers PLC –

and followed this with five years as an

area sales manager for the business.

In 1988 he joined BrightReasons

Restaurants Ltd as an area manager,

firstly for Pizzaland and later for Bella

Italia. In 1998 he joined Pizza Express

plc as regional director for London

and in 2000 took up the position of

managing director. James left Pizza

Express in 2002 and joined Tragus

shortly afterwards.

Giles Thorley

Non-executive Director

Giles was appointed in October

2006. He is senior advisor to TDR

Capital LLP. He was previously the

Chief Executive of Punch Taverns

plc. After qualifying as a Barrister,

his early career was at Nomura

International plc. He successfully led

the IPO of Punch in May 2002 and

saw the business through subsequent

acquisitions including Pubmaster in

2003 and Spirit Group in 2006. Giles

has held a number of Non-Executive

positions inc. Esporta plc, Ducati SpA,

TUI Travel plc and Matthew Clark

plc, Giles is also a trustee of the Rona

Sailing Trust.


Joseph Baratta

Non-executive Director

Joseph is a Senior Managing Director in

the Private Equity Group of Blackstone

and is based in London. Since joining

Blackstone in 1998, Joseph has been

involved in the execution of Blackstone’s

investments in LiveWire, Republic

Technologies International, Universal

Orlando, Nycomed Pharmaceuticals,

Houghton Miffl in and Spirit Group and is

responsible for Blackstone’s investments

in Seaworld Parks and Entertainment,

Merlin Entertainments Group, Center

Parcs, Tragus Group, Southern Cross

and ICS Group. In 2001, Joseph moved

to London to help establish Blackstone’s

corporate private equity business in

Europe. Before joining Blackstone,

Joseph was with Tinicum Incorporated,

and McCown De Leeuw & Company.

He also worked at Morgan Stanley in

its Mergers & Acquisitions Department.

Joseph graduated magna cum laude

from Georgetown University where he

currently serves on the Advisory Board

of the McDonough School of Business.

He serves as a Director of Seaworld

Parks and Entertainment, Merlin

Entertainments Group and Center Parcs.

Alan Roux

Non-executive Director

Alan is an Executive Director in

Blackstone’s Private Equity group and

is based in London. Alan is responsible

for monitoring and advising on the

operational performance and strategy

of Blackstone’s portfolio companies

in Europe. Prior to joining Blackstone

in 2007, Alan was the Director of

Operations Development at Tesco

Stores, where he led the operational

improvement programme for the UK’s

largest retailer. Before that, he was

a Principal for the Boston Consulting

Group in New York and London.

He started his career with Procter &

Gamble in Germany. Alan received

an MBA with Honours from Columbia

Business School and has a Bachelor

of Science in Electronic Engineering

from the University of Cape Town.

He speaks English and German. He

serves on the board of Kloeckner

Pentaplast and United Biscuits.

Raphael de Botton

Non-executive Director

Raphael is an Associate in the

Corporate Private Equity Group

of Blackstone, based in London.

Before joining Blackstone in 2006,

Raphael was with Lazard in the

Mergers and Acquisition division

in New York. Raphael graduated

from ESSEC Business School with

a Master’s degree in fi nance, and

from the French National Institute of

Telecommunications with a Masters of

Science.

Senior Management

Lisa Parsons

Commercial Director

Lisa has over 14 years of experience

in commercial roles, gained mainly

within the service and leisure

industries, and joined Tragus as

part of the management buy-in

from Whitbread in 2002. She began

her career at TUI, the tour operator,

where following the completion of a

graduate trainee scheme, she spent

two years in brand and product

management and NPD roles. Lisa

then moved to Gossard and worked

on NPD and advertising for the Shock

Absorber brand, before joining Tragus

where she is now Commercial Director

with responsibility for procurement

and menu development across the

Group.

Phil Derbyshire

Property Director

Phil spent three years with

Wolverhampton and Dudley

Breweries prior to joining Whitbread

in 1995 as a leasing manager within

Whitbread Pub Partnership. A short

spell as an acquisition manager with

Scottish and Newcastle followed

before he rejoined Whitbread in 2000.

He successfully accelerated the TGI

Fridays acquisition programme and

managed the corporate disposal of

44 restaurants to Noble House Limited

before moving to Pelican – and

subsequently Tragus - as Property

Director. Phil is a member of the Royal

Institute of Chartered Surveyors.

Jemima Bird

Marketing Director

Jemima joined the Tragus Group

as Marketing Director in February

2010 from Musgrave Retail Partners

GB where as Marketing Director

she was responsible for the brand

development of the Budgens and

Londis brands. A food retailer all

of her career, prior to Musgrave,

Jemima was Director of Brand for The

Co-operative Group implementing

the strategic brand review across its

businesses; she started her career at

ASDA. Jemima has worked in front

line operational, senior programme

delivery and change management

roles across HR, Finance, IT and

Marketing. Jemima holds an MBA

from Warwick Business School.

Ownership:

Funds managed by

Blackstone Group

Management

Ordinary

Shares %

80.5

19.5

17


18

The Board of Directors and the Management Board

pro-actively identify, monitor and ensure appropriate

processes are put in place to mitigate any potential

risks and uncertainties to the business.

Principal

Risks and

Uncertainties

There are a number of potential

risks and uncertainties which

could have a material impact

on Tragus’ performance. The

Board of Directors and the

Management Board regularly

identify, monitor and ensure

appropriate processes are put in

place to mitigate potential risks

and uncertainties. These risks

include but are not limited to:-

Operational

Risk Factors

Supply Chain

Tragus has a large number of

suppliers and prides itself on the

quality of its product. The Group could

be adversely affected by a fall in the

standard of goods supplied by third

parties. In order to mitigate this, the

Group’s key food suppliers must carry

the British Retail Consortium (BRC)

approval. Furthermore, the Group’s

key suppliers are subject to an annual

audit by an independent inspection

company which assesses all aspects

of the supplier’s production process.

Any suppliers who do not achieve the

minimum necessary standards are delisted.

The Group regularly re-tenders

its food contracts to ensure the quality

of product supplied.

Employees

The Group’s performance largely

depends on its managers and

staff, both at restaurant and head

office level. The resignation of key

individuals and the inability to recruit

people with the right experience

and skills could adversely impact

the Group’s results. To mitigate these

issues, the Group has invested in

training programmes for its staff to

maintain high service levels and has

a number of bonus schemes linked

to the Group’s results and individual

performance designed to reward and

retain key individuals.

Input price increases

The Group’s margins can be adversely

reflected by an increase in price of

key raw materials including wages

overheads and utilities. This is

mitigated to some extent by hedging

utility purchases.

Brand risk

Brand risk could arise through a one

off incident, such as a food scare, or

a slow decline in a brand’s appeal

to its customer base. The Group

manages the risk of a one off incident

through day to day operational

management. In addition, a rigorous

supplier selection policy is applied.

There is training for all staff on food

safety including use of an e-learning

programme. The risk of a slow decline

in a brand’s appeal is managed

through continuous menu innovation,

marketing campaigns and brand

development.

Expansion risk

Over aggressive expansion could

result in the Group acquiring

unprofitable sites. To mitigate this risk

the Group has a rigorous decision

making process which includes strong

financial and operational review. In

addition, the Group has a dedicated

property team with experience in

identifying and securing new sites.

Essential contracts

No single food supplier makes up a

significant percentage of our total

expenditure. We use a third party

provider for distribution of food and

beverage to the restaurants and we

are reliant on several different banks

for the funding of our debt and credit

facilities.


Fraud

Tragus operates multiple sites

across the UK. Risk of fraud exists in

misappropriation of assets, including

cash banking, theft of stock and theft

of cash takings. The Group mitigates

this risk through management

structure, regular fi nancial review

with and extensive use of business

systems such as EPOS and stock

management. Regular external

fi nancial audits are also carried out on

all restaurants.

Market Risk Factors

Competition

Tragus operates in a highly

competitive market particularly

around service offering, price and

product quality. In order to mitigate

this risk, our marketing teams monitor

market offerings and pricing on an

ongoing basis. Through a third party,

the Group undertakes mystery diner

visits to all our restaurants to ensure

menu and customer service are

maintained to a high standard. In

addition, the existing estate is subject

to a rolling refurbishment programme.

General economic conditions

The disposable income of customers

and their leisure activity preferences

are and will be affected by changes

in the general economic environment.

The Group regularly reviews its

product offering and engages with

its customers to ensure it provides a

value for money offering and meets its

customers’ needs.

Financial

Risks

The Board of Directors regularly

reviews the fi nancial requirements

of the Group and the risks

associated therewith. Tragus does

not use complicated fi nancial

instruments and where fi nancial

instruments are used they are

used for reducing interest rate risk.

The Group does not use derivative

fi nancial instruments for trading

purposes. Group operations are

primarily fi nanced from retained

earnings and bank loans. In

additions to the primary fi nancial

instruments, the Group has other

fi nancial instruments such as

debtors, prepayments, trade

creditors and accruals that directly

arise from the Group’s operations.

The four key

fi nancial risks are:

19

Interest rate risk

Tragus’ interest rate risk arises

from long term borrowings. Bank

borrowings are denominated in

Sterling and are borrowed at fl oating

interest rates. The group utilises

interest rate swaps and caps to fi x

an element of its cost of borrowing.

Liquidity risk

Forecasts identifying the Group’s

liquidity requirements are produced

frequently and are regularly

reviewed to ensure that suffi cient

fi nancial headroom in our bank

covenants exists for at least a

12-month period.

Foreign currency risk

Whilst no borrowings are

denominated in foreign currencies,

a number of suppliers are exposed

to the Euro. Accordingly, wherever

possible, the Group undertakes

supply contracts denominated in

Sterling. Tragus has reviewed its

exposure to foreign currency risk

and has concluded not to hedge

any foreign currency risk but

continues to review its position on an

ongoing basis.

Leverage risk

Under its Facilities Agreement

Tragus is subject to agreed

fi nancial covenants. Breach of

these covenants would require

re-negotiation of the facilities and

the requirement to raise additional

funds from shareholders. The risk is

mitigated by regular and thorough

fi nancial forecasting followed by

close monitoring of these covenants.

Appropriate action is taken to

minimise risk.


20

Corporate

Governance

Report

Tragus believes that effective corporate

governance is a fundamental aspect

of a well run company.

Tragus believes that effective

corporate governance is a

fundamental aspect of a well

run company and is committed

to maintaining high standards

of corporate governance. Whilst

none of the shares of any Group

company are listed on a stock

exchange, Tragus seeks, so far

as appropriate, to comply with

the combined code of Corporate

Governance (the “Combined

Code”). Through the processes that

are in place the directors believe

that Tragus complies with the

spirit of the Combined Code in a

manner that is appropriate to its

ownership structure.

Board Constitution

and Procedures

The Board comprises the nonexecutive

Chairman, three executive

directors, one independent nonexecutive

director and three nonexecutive

directors representing

Blackstone.

The Board’s role is to provide

leadership to, and to set the strategic

direction of, the Group. The Board

monitors operational performance

and is also responsible for establishing

Group policies and internal controls to

manage risk.

The Chairman is responsible for the

leadership of the Board and the Chief

Executive Officer, assisted by the other

executive directors, is responsible for

the strategic direction and operational

management of the Group.

The full Board is scheduled to meet six

times a year, usually bi-monthly. The

Board has a schedule of matters which

are reserved for its decision. Such

matters include, but are not limited

to, the approval of annual budgets,

strategic plans, acquisitions and

disposals, major capital expenditure,

senior management appointments,

material contracts and any changes

to the Group’s financing arrangements

and financial policies. Items delegated

to the Executive Directors include the

approval of capital or expenditure

below the limits required for Board

sign off, disposal of low value assets

and approval of minor contracts or

less senior appointments.

Where urgent decisions are required

on matters specifically reserved for the

Board in between meetings, there is a

process in place to facilitate discussion

and decision making.

Board Committees

The Board has two principal

committees; a Remuneration

Committee and an Audit Committee.

Both have clearly defined duties with

written terms of reference that are

approved by the Board.

Audit Committee

The Audit Committee is chaired by the

Chairman and its members include

the Chief Executive, Chief Financial

Officer and two non-executive

Directors.

The Audit Committee meets regularly

and is responsible for all matters

relating to the regulatory and

accounting requirements that may

affect the Group, together with the

financial reporting and internal

control procedures adopted by the

Group.

The Audit Committee’s responsibilities

include:

Reviewing the financial statements

of the Group and the external

auditors report thereon, prior

to approval by the Board, and

reviewing significant financial

reporting judgments

• Monitoring and reviewing the

external auditor’s independence,

objectivity and effectiveness,

taking into consideration relevant

professional and regulatory

requirements.

• Establishing procedures to ensure

that the Group monitors and

evaluates risks appropriately.

Reviewing the Group’s internal

financial control systems

Tragus’ external auditors have

confirmed for the year under review

that they consider themselves to be

independent in their professional

judgment.


If the Committee’s activities reveal

any issues of concern or scope

for improvement, it will make

recommendations to the Board

on actions needed to address the

issue raised or make the necessary

improvement.

Remuneration Committee

The Remuneration Committee is

chaired by the Chairman and its

other members comprise the Chief

Executive, the Chief Financial Offi cer

and two Blackstone directors. The

Committee meets at least once a year

and will also meet at such other times

as the Board or Committee Chairman

may decide.

The Remuneration Committee

is responsible for agreeing the

framework for the remuneration

and other terms of employment of

the executive directors and senior

managers; determining the total

individual remuneration packages

of each person and determining

the participation of directors

and employees in the Tragus

Management Equity Scheme.

Individual directors do not participate

in any discussions or vote in relation to

their own remuneration.

Internal Controls

The Board has overall responsibility for

the systems of internal control, which

are designed to manage the risk of

failure to achieve the objectives of the

business, where such risk cannot be

eliminated. The Board has considered

the systems of internal control for the

accounting year under review and

considers these to be appropriate

and adequate for the purposes of the

Group.

21


22

Mouthwatering food, new menus and

photography, combined with evocative imagery

have been used to great effect as we continue

to invest in developing our brands.

Investing in our

brands

Despite the recent tough economic climate

Tragus has continued to invest in its key

brands; developing new menus and creating

a raft of imagery refl ecting each brands’

exciting and memorable dining experience.

Where better to express this exuberance than

through the brand websites and the creative

use of social media.

www.tragusgroup.com

www.bellaitalia.co.uk


A TASTE OF FRANCE

WITH A MODERN TWIST

THERE ARE MANY ITALYS...

TASTE THEM ALL AT STRADA

www.caferouge.co.uk www.strada.co.uk

23


Tragus Group Ltd

163 Eversholt Street, London, NW1 1BU

Tel: +44 (0)20 7121 3200

www.tragusgroup.com

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