DIRECTORS, SENIOR MANAGEMENT AND CORPORATE GOVERNANCE 1. Directors of the Spirit Group
Name Position in respect of Spirit
Executive Directors:
Ian Dyson Chief Executive Officer
Mike Tye Deputy Chief Executive Officer
Russell Margerrison Interim Finance Director
Non-Executive Directors:
Walker Boyd Non-Executive Chairman
Tony Rice Senior Independent Non-Executive Director
Mark Pain Non-Executive Director
In addition to the above directors, Christopher Bell will join the board as a non-executive director with effect from the Demerger Effective Time.
The business address of each of the Directors is Sunrise House, Ninth Avenue, Burton-upon-Trent, Staffordshire DE14 3JZ.
Brief biographical details of the Directors are as follows: Walker Boyd
Walker Boyd, 59, is the non-executive Chairman of the Company. Mr Boyd is also currently non- executive chairman of WH Smith plc. He has substantial retail expertise in both the UK and the USA. He retired as group finance director at Signet Jewellers Limited in June 2010 (previously Signet Group Plc) having held this position since 1995. Prior to that Mr Boyd was finance director of Signet’s UK Jewellery Division from 1992. Mr Boyd was appointed a non-executive director of Punch on 12 April 2011 and will step down from the board of directors of Punch upon the completion of the Demerger.
Ian Dyson
Ian Dyson, 49, is the Chief Executive Officer of the Company. Mr Dyson is currently chief executive officer of Punch and will step down from the role upon completion of the Demerger where upon he will become a non-executive director of Punch for a transitional period following the Demerger. Mr Dyson was previously with Marks and Spencer plc where he was group finance and operations director and prior to that group finance director. He was formerly finance director of The Rank Group plc and financial controller of Hilton Group plc. Mr Dyson was appointed a non- executive director of the then Betfair Limited (now Betfair plc) in February 2010.
Mike Tye
Mike Tye, 57, is the Deputy Chief Executive Officer of the Company. Mr Tye is currently an executive director of Punch, a position from which he will step down with effect from the completion of the Demerger. Mr Tye has spent over 20 years working in many different areas of the leisure business, mainly with Whitbread, Forte and Aramark. In recent years, he has been managing director of Costa Coffee; managing director of Premier Travel Inn (where he led the acquisition and integration of Premier Lodge with Travel Inn); and David Lloyd Leisure, where he led the business turnaround and sale of the company. He has spent a number of years working in the retail pub and casual dining markets, after an early career in managing FMCG brands and running his own wine and spirit retail and wholesale business.
Russell Margerrison
Russell Margerrison, 51, joined the Punch Group in January 2011 as group business planning director with responsibility for leading the operational demerger of the Spirit Group from the Punch Group. He was appointed interim finance director of the Company in June 2011. Mr Margerrison was previously managing director trading and finance director for Tour Operations at Thomas Cook, finance director at Rank Holidays and has spent 15 years in various management positions with Bass.
Tony Rice
Tony Rice, 59, is a non-executive Director and the senior independent director of Spirit in June 2011. Mr Rice spent 16 years with BAE Systems (formerly British Aerospace) where he had various roles from 1986 to 2002, culminating in the role of group managing director of Commercial Aircraft responsible for the UK Airbus and commercial aircraft business. He then spent three years at Tunstall plc as chief executive from 2002 until its sale to Bridgepoint in 2005. Mr Rice is chief executive officer of Cable and Wireless Communications where he is responsible for the international business consisting of 38 telecoms companies in various locations around the world. He was also a non-executive director and chairman of the audit committee at Cable & Wireless from 2003 to 2006 and at Telewest from 2000 to 2003. Mr Rice was appointed as an independent non-executive director of Punch in December 2007, a position from which he will step down upon completion of the Demerger.
Mark Pain
Mark Pain, 50, is an independent non-executive Director of Spirit and he will remain a non- executive director of Punch for a transitional period following the Demerger. Mr Pain has a wealth of experience as a FTSE 100 main board director, covering a range of sectors, including: property, media, housebuilding, retail and wholesale banking, consumer finance, life assurance and general insurance. He served as chief financial officer of Barratt Developments Plc from 2006 to 2009. He was previously at Abbey National where he held a number of senior executive and group board positions, including: group finance director from 1998 to 2001 and customer sales director from 2002 to 2005. Mr Pain is a Fellow of the Institute of Chartered Accountants in England and Wales. Christopher Bell
Chris Bell, 53, will be appointed as a non-executive Director of Spirit with effect from the Demerger Effective Time. Mr Bell has been chairman of GAME Group plc since June 2011, having joined the board in 2003 as a non-executive director. He was chief executive officer of Ladbrokes plc between 2006 and 2010. Prior to that, he spent six years as managing director at Hilton Group and eight years as managing director at Ladbroke Group. Mr Bell is also currently senior independent director of Quintain Estates and Development. He has also been a board member of the Responsible Gambling Strategy Board (‘‘RGSB’’) since 2009. The RGSB advises the Government on gambling strategy and regulation and Mr Bell’s board membership has recently been renewed for a further two years.
2. Corporate Governance 2.1 Introduction
The Board will be made up of seven members, consisting of the Chairman, three executive Directors and three non-executive Directors, all three of whom will be independent.
The roles of the chairman and the chief executive will be distinct and separate, with a clear division of responsibilities. The chairman will lead the Board and will ensure the effective engagement and contribution of all non-executive directors and executive directors. The chief executive will have responsibility for all the Spirit Group’s businesses and will act in accordance with the authority delegated by the Board. Responsibility for the development of policy and strategy, and operational management will be delegated to the chief executive and the other executive Directors.
The Board has established nomination, remuneration and audit committees, with formally delegated duties and responsibilities and with written terms of reference. From time to time, separate committees may be set up by the Board to consider specific issues when the need arises.
The UK Corporate Governance Code recommends that at least half the members of the board of directors (excluding the chairman) of a public limited company incorporated in the United Kingdom should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement.
The Board attaches the highest priority to corporate governance, the system by which the Company is directed, managed and controlled in the interests of all its stakeholders. Prior to Admission, the Company will be in full compliance with the provisions of the UK Corporate Govenance Code. Due to the fact that, until the completion of the Demerger, a number of
Spirit Directors will also be directors of Punch and Christopher Bell will not yet have joined the Board as a non-executive Director, the Company is not in compliance with the UK Corporate Governance Code as at the date of this document.
The Directors believe that the initial composition of the Board and the committees is appropriate for Spirit as a newly independent company. It offers continuity to Shareholders, and removes the risk of introducing a number of new directors to the Spirit Group within a short period of time. Further, the Board is well balanced with three non-executive directors, three executive directors and the Chairman. Following the Demerger, Tony Rice, Mark Pain and Christopher Bell will be independent directors.
2.2 Spirit Audit Committee
The members of the audit committee will comprise Mark Pain (chairman of the committee), Tony Rice and Christopher Bell.
The audit committee will hold at least four meetings each year, each of which will be held prior to the publication and release of the interim management statements and the release of interim and annual financial statements. Further meetings may be called as required. The internal and external auditors have the right to attend meetings. The relevant executive directors, the Company’s legal advisers and other persons may, by invitation from the audit committee, attend meetings. At least once per year, the audit committee may, if it so requires, meet privately with the external auditors.
The audit committee will be responsible for:
* assisting the Board in discharging its responsibilities and in making all relevant disclosures in relation to the financial affairs of the Company;
* reviewing accounting policies and financial reporting and regulatory compliance; * reviewing the Company’s system of internal control; and
* monitoring the Company’s processes for internal audit, risk management and external audit.
2.3 Spirit Remuneration Committee
The members of the remuneration committee will comprise Tony Rice (chairman of the committee), Walker Boyd, Mark Pain and Christopher Bell.
The remuneration committee will be responsible for determining and agreeing with the Board the broad policy for the remuneration of the chief executive, the chairman and such other members of the executive management as it is designated to consider. The remuneration committee, within the terms of the agreed policy, will determine the total individual remuneration package of each executive director. In addition, the remuneration committee will ensure that provisions regarding disclosure of remuneration are fulfilled. The remuneration committee will make recommendations to the Board on the remuneration arrangements for the executive directors and the chairman. The remuneration committee will oversee the remuneration policy of the Spirit Group.
No director will be involved in decisions as to his or her own remuneration. The remuneration committee is constituted in accordance with the recommendations of the UK Corporate Governance Code.
2.4 Spirit Nominations Committee
The members of the nomination committee will comprise Walker Boyd (chairman of the committee), Tony Rice, Mark Pain and Christopher Bell.
The nomination committee will meet once annually and as and when required.
The nomination committee will be responsible for assisting the Board in the formal selection and appointment of directors. It will consider potential candidates and will recommend appointments of new directors to the Board. The appointments will be based on merit and against objective criteria, including the time available to, and the commitment which will be required of, the potential director. It will also be responsible for carrying out an annual performance evaluation of the Board, its committees and individual directors.
In addition, the nomination committee will make recommendations to the Board as regards succession planning for both executive directors and non-executive directors. The nomination committee will take into account the challenges and opportunities facing the Spirit Group and what skills and expertise will therefore be needed on the Board in the future.
PART III
OPERATING AND FINANCIAL REVIEW
The following discussion of the Spirit Group’s financial condition and results of operations should be read in conjunction with the financial information referred to in Part IV: ‘‘Historical Financial Information’’ of this document and the other information relating to the business of the Spirit Group contained in this document. The following discussion contains forward-looking statements that are based on assumptions about the Spirit Group’s future business. The Spirit Group’s actual results could differ materially from those discussed in these forward-looking statements. For further information regarding the factors that may affect the Spirit Group’s business, please see the risk factors set out on pages 9 to 23 (inclusive) of this document, and the ‘‘Note regarding forward- looking statements’’ set out on page 24 of this document.
The historical financial information set out in this document has been prepared in respect of the Accounts Group, which is the group of companies that owned and operated the Spirit Business during the period covered by the historical financial information set out in this document. References to the Spirit Group in this Part III (and elsewhere in the document where historical financial information has been stated in relation to the Spirit Group) should be read accordingly. Following the Demerger, the companies which make up the Accounts Group will be indirect subsidiaries of Spirit. In addition to the companies which make up the Accounts Group, following the Demerger, Spirit will have two further subsidiaries, Spirit Pub Company (Holdco) Limited (which will be a direct subsidiary of Spirit) and Spirit Pub Company (SGE) Limited (which will be a direct subsidiary of Spirit Pub Company (Holdco) Limited). Neither Spirit Pub Company (Holdco) Limited nor Spirit Pub Company (SGE) Limited have, as of the date of this document, commenced operations and have therefore not been included within the historical financial information set out in this document. Following the Demerger, the companies which form the Accounts Group will be direct and indirect subsidiaries of Spirit Pub Company (SGE) Limited.
1. Overview Business overview
The Spirit Group is a leading operator of managed and leased pubs in the United Kingdom. As at 1 July 2011, the Spirit Group’s estate comprised 1,352 pubs across the United Kingdom, of which 803 were operated under the direct management of the Spirit Group and 549 were operated under lease and tenancy agreements with independent retailers. The business of the Spirit Group is primarily the sale of drink and food to customers of pubs managed by the Spirit Group and the leasing of pubs and the provision of goods and services to retailers who operate those pubs leased from the Spirit Group.
The strategy of the Spirit Group is for it to become a solely managed pub business. In line with this strategy, it is expected that up to 100 pubs in the Spirit Group’s leased estate will, over the next few years, be converted into managed pubs. It is intended that, over time, those leased pubs which the Board believes are not suitable for conversion to managed pubs will be sold, with the speed and timing of such disposals balanced against other factors, such as the value which can be obtained by the Spirit Group. The current intention is that the Spirit Group will, over time, become a solely managed pub business. In addition, the managed pub business will be positioned to accelerate its operational turnaround, to take advantage of the growth potential of the eating-out market and to grow its estate and brands with a view to becoming one of the UK’s leading managed pub businesses.
Within the managed estate, the Spirit Group derives revenue primarily from the sale of drink and food to members of the public. Within the leased estate, the Spirit Group derives revenue from two primary sources: sales of beer and other drink products to retailers; and rent from retailers under lease or tenancy agreements. During the financial year ended 21 August 2010, the Spirit Group generated revenue of £724 million.
Industry overview
The Spirit Group operates in the UK pub industry, which itself is part of the wider drinking-out and eating-out market, which also includes restaurants, social clubs, nightclubs and fast food outlets. As at 15 June 2011, the UK pub industry consisted of some 60,085 licensed public houses, and going to pubs, clubs and bars continues to be one of the most popular leisure activities in the
United Kingdom. In 2010, the annual sales of the UK pub industry were estimated to be approximately £20.1 billion.
The UK pub industry can be broadly categorised into three business models: leased or tenanted pubs; managed pubs; and individual, independently owned pubs.
* Managed pubs. Managed pubs are generally owned by a pub company or brewer. The owner
of a managed pub employs all of the pub staff, is responsible for the operating expenses of the pub and generally prescribes the entire range of products offered by the pub. Managed pubs tend to be larger and have a higher average weekly turnover than leased or tenanted pubs and individual, independently owned pubs. As at 15 June 2011, managed pubs comprised approximately 17.17 per cent. of all pubs operating in the United Kingdom.
* Leased or tenanted pubs. Leased or tenanted pubs are run and managed by a retailer who
does not own the premises, but who operates the pub under a lease or tenancy agreement. The retailer is generally responsible for the maintenance of the pub and is normally contracted to purchase the majority of drink products for resale from the owner of the pub. Leased or tenanted pubs tend to have a lower average weekly turnover than managed pubs and have historically been more dependent than managed pubs on the sale of draught beer. As at 15 June 2011, leased or tenanted pubs comprised approximately 46.9 per cent. of all pubs operating in the United Kingdom. In this document, unless the context otherwise requires, references to leased pubs also include tenanted pubs.
* Individual pubs. Individual pubs (sometimes known as free houses) are independently owned
and operated by private individuals. The owner has full operational and managerial control of the pub and is free to decide which products to sell. As at 15 June 2011, individual, independently owned pubs comprised approximately 37.7 per cent. of all pubs operating in the United Kingdom.
2. Basis of presentation Financial year variation
The Spirit Group’s accounts have been drawn up for a whole number of weeks in accordance with common practice in the pub industry. Financial years are therefore generally 52 weeks long, with the occasional 53-week period to maintain the year end around the 24 August accounting reference date. The financial periods reviewed in this section are the same as those referred to in Part IV: ‘‘Historical Financial Information’’ of this document. These periods are not of uniform duration for successive years, comprising a 52-week period ended 21 August 2010 and 22 August 2009 and a 53-week period ended 23 August 2008, and a 28-week period ended 5 March 2011 (with comparative information for the 28-week period ended 6 March 2010). Consequently, the results for the 53-week period ended 23 August 2008 were positively impacted by an additional week’s trading relative to the later years.
The discussion in sections 3 and 4 of this Part III does not reflect the more recent matters discussed in section 8: ‘‘Current Trading, Trends and Prospects’’, which should be read together