SSP Group Regulatory News (SSPG)

FOR IMMEDIATE RELEASE

LEI: 213800QGNIWTXFMENJ24

Kate Swann

Jonathan Davies

Chief Executive Officer

Chief Financial Officer

28 November 2016

28 November 2016

Strategic

Strategic development

The Group's strategy involves expanding its business in developing markets, including Asia Pacific and Eastern Europe and the Middle East.

The Group may not be successful in winning new contracts on commercially acceptable terms, or may win new contracts but fail to mobilise and operate them successfully in these territories.

The Group may not have the capability to enter new markets and capitalise on the business development opportunities these provide.

The Group prioritises its investment in new contracts as part of the ongoing review of its global pipeline, and the prioritisation of its capital investment and resources.

The Group has strengthened the management team in Asia Pacific, USA and Eastern Europe and the Middle East, especially in business development and operations.

The executive management team reviews mobilisation plans to ensure that new openings are delivered on time.

The Group adopts a joint venture model in certain new territories to provide access to existing local infrastructure and expertise.

Client relationships

The Group's operations are dependent on the terms of airport and railway station concession agreements and on its ability to retain existing concession contracts and win new contracts from either its existing or new clients. The Group's clients may turn to alternative operators, cease operations, terminate contracts with the Group or increase pricing pressure on the Group.

The Group's local management structures in all its major geographies allow it to maintain strong relationships with its clients and monitor performance in close partnership with its clients' management teams. The Group has now established a 'contact strategy' with key stakeholders at clients to establish and/or maintain ongoing relationships.

The Group also has an annual online and interview-based client survey to ensure any concerns are being addressed. Furthermore, the Group proactively seeks to invest in, extend and enhance its offers in its key locations, working in conjunction with its clients.

Senior management capability and retention

The performance of the Group depends on its ability to attract, motivate and retain key employees. The skills developed in our business are highly attractive to other companies, who regularly target them for recruitment.

The Group may not have sufficient management capability at a senior level (e.g. country leadership) to execute the planned operational efficiency programmes and support the growth and development of the business.

The Group may not have sufficient resources to meet the changing and complex needs of an international and growing business (e.g. Legal, Finance, IT).

The Group continues to review key roles and succession plans in country and at the centre. Senior resources have been strengthened in a number of strategically important and growing businesses.

The Group carries out an annual talent mapping exercise to identify candidates for future roles.

The Group Remuneration Committee monitors the levels of remuneration for senior management and seeks to ensure that they are designed to attract, retain and motivate the key personnel to run the Group effectively.

The Group has invested in additional resource to support change initiatives and business development programmes.

Business environment

The Group operates in the travel environment where external factors such as the general economic and geopolitical climate (including the impact of Brexit and sustained terrorist attacks impacting key markets), levels of disposable income, weather, changing demographics and travel patterns could all impact both passenger numbers and consumer spending. There is a risk that the Group is unable to or poorly placed to respond to these external events.

The Group monitors the performance of individual business units and markets regularly. The executive management team reviews detailed weekly and monthly information covering a range of KPIs, and monitors progress on key strategic projects. Specific short and medium-term actions are taken to address any trading performance issues which are monitored on an ongoing basis.

The Group also conducts extensive customer research to understand current levels of customer satisfaction and gathers feedback on changing consumer requirements.

Changing business model

Changing client requirements, such as splitting tenders across two or more providers, partnering with operators in joint ventures, developing third party purchasing models and favouring local brand operators or partnering directly with brand owners, may adversely affect the Group's business.

The Group has in place a clear 'SSP Value Proposition' that it presents to the client to address this risk.

The Group's Director of Strategic Partnerships and the Group Chief Commercial Officer work closely with the country management teams to enhance and clarify the Group's proposition to its clients.

The Group's 'contact strategy' with key stakeholders and its clients helps to mitigate this risk. This is informed by its annual client survey, which is carried out by an independent party.

Brand portfolio

The Group's success is largely dependent upon its ability to maintain its portfolio of proprietary brands as well as the brands of its franchisors, and the appeal of those brands for clients and customers. The loss of any significant partner brands, the inability to obtain rights to new brands over time or the diminution in the appeal of partner brands or the Group's proprietary brands could impair the Group's ability to compete effectively in tender processes and ultimately have a material adverse effect on the Group's business.

The Group carries out extensive customer research into passengers' needs and continually analyses market trends in order to enhance its brand and concept portfolio on an ongoing basis.

The Group has strengthened its dedicated brands team to work closely with its partner brands and to enable greater capacity to attract and manage a broader portfolio of external brands. The Group has extended its brand portfolio to provide additional breadth and depth of brand partners.

Intensified competition

Competition intensifies as the Group's competitors become more sophisticated and direct more resources to the preparation of bids and take a more aggressive position on commercial terms when bidding for contracts. This could put pressure on the Group's profitability and reduce the availability and attractiveness of contracts.

The Group has clear internal benchmarking and investment appraisal processes to evaluate tender proposals and to ensure that the Group is able to make a competitive offer, as well as meet its investment criteria.

The Group has developed high-quality 'business-to-business' marketing collateral to clearly lay out the benefits of working with SSP, which it shares with the clients to help them better understand the Group's proposition from both quantitative and qualitative aspects.

The Group's strengthened business development team utilise the feedback from regular client satisfaction surveys when developing new bids.

Expansion in

developing markets

The Group operates business directly in a number of developing markets, including Asia Pacific and Eastern Europe and the Middle East. Political, economic and legal systems and conditions in these countries are generally less predictable than in countries with more developed institutional structures, subjecting the Group to additional commercial, reputational, legal and compliance risks.

The Group has clearly defined authorisation procedures for all contract investment to ensure that it is consistent with the objectives set by the Board, and fully considers and evaluates the risks inherent in expansion into new locations and territories.

The Group works with in-house and external advisors to ensure risks of doing business in developing markets are identified and where possible mitigated before entering those markets.

The Group has strengthened its legal teams to support business development activities and ensure compliance with local requirements.

The risk of working in developing markets is also monitored by the Group Risk Committee and the Group Audit Committee.

Implementation of efficiency programmes

The change programmes fail to deliver benefits e.g. labour efficiency and improvements in wastage and loss.

The Group has completed detailed evaluation and planning for its major change programmes. Specialist expertise has been recruited into the business where required, both at a Group and a country level. The Group provides central support with regional CEOs and CFOs to facilitate appropriate country actions based on key performance indicators linked to margin management. Group IT also provides support for project management and implementation using agreed standard business processes and controls.

Labour laws and unions

Approximately 35% of the Group's employees are subject to collective bargaining agreements, principally in France, Germany, Spain, Denmark, Finland, Norway, Sweden and the United States.

The Group is also subject to minimum wage requirements and mandatory healthcare subsidisation in some of the jurisdictions in which it operates, notably North America, the United Kingdom and China.

The Group works proactively with all of its unions to ensure that the various collective bargaining agreements are appropriate for the Group and minimise commercial risks.

The Group is reviewing the impact of changes in remuneration structures, including the introduction of the national living wage and apprenticeship levy in the UK and the Healthcare bill in the US and developing mitigating strategies across the Group.

Outsourcing programmes

The Group fails to execute outsourcing projects effectively resulting in the business as usual being disrupted and the introduction of new third party risks.

The Group has recruited specialist resources into the business to manage implementation and transition projects and has used external advisors to provide input into the management of risks on such projects.

The outsourcing partners are highly reputable and have been selected after a rigorous tender process and extensive due diligence.

Cyber threats

The Group becomes exposed to information security and cyber threats e.g. Payment Card Industry Data Security Standards (PCIDSS).

The Group continually reviews its business continuity plans for its supply chain, IT disaster recovery and information security policies and practices to ensure that these meet the changing landscape.

Tax strategy

Risk that reputation is damaged if customers, clientsand / or suppliers believe that the Group is engaged in aggressive or abusive tax avoidance.

The Group has a tax management policy which is based on Board guidance to adopt a low risk tax strategy.

2016

£m

2015

£m

Purchases from related parties1

(4.8)

(3.9)

Management fee income

1.6

0.7

Other income

1.1

0.5

Amounts owed by related parties at the end of the year

0.7

0.1

Amounts owed to related parties at the end of the year2

(4.9)

(0.2)

2016

£m

2015

£m

Short-term employee benefits

(4.0)

(4.0)

Post-employment benefits

(0.4)

(0.4)

Share-based payments

(1.3)

(0.8)

(5.7)

(5.2)