Académique Documents
Professionnel Documents
Culture Documents
HIGHLIGHTS FY2005
TURNOVER UP 39% TO 70.1M (2004: 50.5M). LIKE-FOR-LIKE STORE SALES POSITIVE 7.5%. EBITDA INCREASED BY 81% TO 11.8M (2004: 6.5M). OPERATING PROFIT IMPROVED BY 155% TO 6.0M
(2004: 2.4M).
EPS GREW BY 100% TO 7.49P (2004: 3.75P). CASH BALANCE OF 4.0M AND BANKING FACILITIES
OF 3.5M AVAILABLE AT YEAR END.
01 05 09 10 13 15 18 19 20 21 22 23
FINANCIAL EVOLUTION CHAIRMANS STATEMENT THE BOARD, DIRECTORS & ADVISERS DIRECTORS REPORT CORPORATE GOVERNANCE DIRECTORS REMUNERATION REPORT STATEMENT OF DIRECTORS RESPONSIBILITIES AUDITORS REPORT GROUP PROFIT & LOSS ACCOUNT GROUP BALANCE SHEET COMPANY BALANCE SHEET GROUP STATEMENT OF CASH FLOWS /RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 24 NOTES TO THE FINANCIAL STATEMENTS 34 NOTICE OF AGM
FINANCIAL EVOLUTION
02
03
04
05
02
03
04
05
6.5
04
05
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 FINANCIAL EVOLUTION
01
RATED THE BEST COFFEE HOUSE BRAND IN BRITAIN FOR THE 5TH YEAR RUNNING
Allegra Strategies, Consumer Survey on Coffee 2004
02
03
04
CHAIRMANS STATEMENT
BALANCE SHEET AND FUNDING At the year end 31 May 2005, Caff Neros cash position stood at 4.0m. Net debt was 11.6m (c.1.0 x EBITDA of 11.8m). An additional 3.5m facility was also available from the Bank of Scotland, if required. Caff Neros cash flow generating capabilities suggest that in the next 12 months there will be no need for further funds outside the Groups existing arrangements, at least not unless there is a further acceleration of growth or an acquisition. The Groups internally-generated cash is now able to finance its capital expenditure programme. This means Caff Nero can self-fund more than 50 new stores per annum without any outside financing. THE UK RETAIL COFFEE MARKET Growth and Size The UK coffee bar market continues to be an exciting market. Overall, it registers at approximately 2.2 billion. The fastest growing segment within that is the branded coffee bar area. In 2005, the branded segment was worth approximately 700 million (Allegra Strategies). The pace of growth of this branded segment continues to be astounding. According to Allegra Strategies, the definitive UK coffee industry researchers, the branded market will rise by more than 10% per annum for the next few years. Most experts now expect the branded segment to approach the 1 billion mark in the UK within the next five years. Without doubt, a great market opportunity exists for Caff Nero on the road ahead. Competitive Landscape Three main brands continue to dominate the UK branded coffee segment: Caff Nero, Starbucks and Costa Coffee. Together these three brands already control approximately 57% of the 700 million market. Two of the three, Caff Nero and Starbucks, are gaining market share faster than their competitors. In fact, Caff Nero, which has approximately 12% of the branded market, is growing market share the fastest, gaining nearly 1% share per annum over the last few years. With the ascendancy of these two brands, it appears the branded UK retail coffee market has divided into two sub-segments: a European offering where Caff Nero is the leader and a North American proposition where Starbucks is the main player. These two market leaders are well positioned to benefit the most from the continuing growth of the branded UK coffee sector. The Dynamics There has been much debate about the reasons behind the spectacular growth in the UK coffee market and whether it is here to stay. Any explanation needs to factor in several converging developments with the UK consumer. Firstly, coffee culture has been steadily creeping into UK society and, in particular, there has been greater appreciation of, and demand for, gourmet espresso-based coffee. Secondly, caf society has been spreading from the continent at a greater rate than in the past. As more people travel to and from Europe, a lifestyle change in the UK has begun to take shape. Thirdly, a new generation and mentality has emerged in the UK: one that demands venues which are female friendly, clean and airy, as well as alcohol-free and flexible in format. These three factors are unlikely to recede for the UK consumer. Coffee houses with quality brands have filled the needs of these converging consumer demands and look set to continue to do so.
INTRODUCTION The directors and I are very pleased with Caff Neros performance for the 12 months to 31 May 2005 (FY2005). It was another year of record financial results and of outstanding achievement on all three of our key fronts: growth, profitability and brand rating. We opened 52 (net) new stores in the year, grew operating profit by 155% and retained our number one brand ranking with consumers. A snapshot of the year reinforces that Caff Nero is emerging as a highly promising national brand. FINANCIAL PERFORMANCE We are delighted with the financial results. Caff Nero exceeded every financial target set by the Board for the Group at the beginning of the year and, in the process, achieved record turnover and profit. Sales increased 39% to 70.1m (2004: 50.5m) and like-for-like sales were up 7.5%, the highest in Caff Neros history. Caff Nero has now recorded 32 consecutive quarters of positive like-for-like sales. Profit also increased sharply. Store Profit (profit before central overheads) rose by 60% to 17.1m (2004: 10.6m). EBITDA, the critical measurement of cashflow profit, jumped 81% to 11.8m (2004: 6.5m). This leap forward reflects the same phenomenon as in the previous three years: having reached a threshold number of stores and a sufficient level of infrastructure, a large portion of each new stores profit flows down to the Groups profit line. Consequently, significant increases occurred in Caff Neros adjusted Operating Profit (before amortisation of goodwill and exceptionals), which grew by 112% to 6.5m (2004: 3.1m). Likewise, we made great strides in non-adjusted Operating Profit, which climbed by 155% to 6.0m (2004: 2.4m). Increases at the pre-tax profit level were equally robust. The Groups adjusted Pre-tax Profit (before amortisation of goodwill) rose by 156% to 5.6m (2004: 2.2m), while Caff Neros non-adjusted Pre-tax Profit improved by 201% to a record 5.1m (2004: 1.7m). Profit After-Tax was also a record; it climbed to 5.0m, which is a 100% increase. Basic earnings per share rose from 3.75p to 7.49p, also a 100% uplift. More relevant (due to the recognition of a deferred tax asset last year) is the pre-tax earnings per share figure, which jumped from 2.56p to 7.72p, a 202% increase. All in all, this was a very respectable financial performance.
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 CHAIRMANS STATEMENT
05
CURRENT TRADING AND DEVELOPMENTS The Group has had a promising start to its current financial year. Despite the London bombings and the UK consumer slowdown, Caff Nero has continued to trade solidly throughout June, July and August. Revenues are up by 34% in the first quarter. In the same three months, the Group has opened 16 new stores, which is slightly ahead of schedule. Currently we have 230 stores operating in 101 UK towns and cities. Our objective is to introduce 41 new cafes in the year, giving us 255 stores by our year end, May 2006. Since the year end we have also further strengthened our senior management team with the appointment of a new UK Managing Director, Jonathan Hart. Jonathan joins us after having previously been Group Managing Director of Dixons and Head of the Retail Network of Abbey National. He will help in the dayto-day management of the UK business, drawing from a solid background of more than 20 years of retail experience. FUTURE PROSPECTS Caff Nero is poised to have another strong year. Much like last year, all the main ingredients remain in place for us to excel: a thriving UK retail coffee market, a favourable retail property environment with extensive availability of sites at reasonable prices, a coffee brand highly rated by UK consumers, a management team and general infrastructure well-placed to support a roll-out, and self-generated funds sufficient to finance the Groups growth. The theme then for this current year is more of the same. We intend to continue our UK roll-out in a disciplined manner. We also plan to bolster our processes and controls to allow us to more effectively manage our enlarging business. One additional aspect to the year will be to spend more time analysing international opportunities, namely in Northern Europe and the Middle East. We believe that Caff Nero has great potential abroad and it is time to examine which new markets will provide the best opportunities. Nonetheless, the key to a successful year for Caff Nero is to stay focussed on the UK and to continue to deliver growth, profitability and a strong brand rating.
06
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 CHAIRMANS STATEMENT CONTINUED
CAFFE NERO IS THE COMMUNITY GATHERING SPOT: COME READ THE PAPER, TALK WITH FRIENDS, HAVE A BUSINESS MEETING OR JUST WATCH THE WORLD GO BY
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08
THE BOARD
GERRY FORD CHAIRMAN & CHIEF EXECUTIVE (aged 47) Dr Ford oversees the general management, strategy, and branding of Caff Nero. Dr Ford first developed his European coffee house concept in 1996. The concept was applied to the five original sites acquired in 1997, and the brand has subsequently been rolled-out throughout the UK. Dr Ford holds a BA from Stanford, a MBA from INSEAD and a PhD from Oxford. He has 18 years experience managing, advising and investing in small and medium sized consumer goods companies, including co-founding Paladin Associates a venture capital group which both invests in and manages food, consumer brands, and media businesses. BEN PRICE FINANCE DIRECTOR (aged 38) Mr Price oversees all financial aspects of the Group as well as site acquisitions. Mr Price has a physics degree from Oxford and qualified as an accountant with Ernst & Young, where he worked for 5 years in the audit practice. Since then he has had over 11 years of senior finance management experience in the retail sector. For 3 years he was at Dixons PLC, where he became one of the senior finance managers reporting directly to the Group Finance Director. He then served as the finance controller of a furniture retailer before joining Caff Nero in June 1997 as part of Dr Fords original management team. JOHN BARNES NON-EXECUTIVE DIRECTOR (aged 56) Mr Barnes has 34 years experience in Europe and the USA in consumer orientated businesses. He is non-executive Chairman of La Tasca Group PLC, a non-executive Director of Hardy and Hansons PLC, a non-executive Director of Interior Services Group PLC, non-executive Chairman of Zoo Digital PLC and a non-executive Director of Arena Leisure PLC. He is also co-author of the best selling marketing book Marketing Judo. DAVID KING NON-EXECUTIVE DIRECTOR (aged 54) Mr King is currently the CEO of Interior Services Group PLC, the occupancy specialist firm he founded in 1989. Nine years later, Mr King floated Interior Services on AIM. Interior Services now employs over 500 fee earning staff and has turnover of over 400m. Mr King has more than 20 years experience in the fit out industry and has strong small business management skills.
DIRECTORS G W Ford B J Price M J Barnes J D King SECRETARY B J Price AUDITORS Ernst & Young LLP 1 More London Place London SE1 2AF BANKERS Bank of Scotland The Mound Edinburgh EH1 1YZ SOLICITORS Landwell 1 Embankment Place London WC2N 6DX STOCKBROKERS Collins Stewart 9th Floor 88 Wood Street London EC2V 7QR REGISTRARS Capita Registrars Plc The Registry 34 Beckenham Road Beckenham Kent BR3 4TU REGISTERED OFFICE 3 Neal Street London WC2H 9PU COMPANY NUMBER 4129005
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 THE BOARD, DIRECTORS & ADVISERS
09
DIRECTORS REPORT
The directors present their report and financial statements for the Caff Nero Group PLC group (the Group) and the Caff Nero Group PLC company (the Company) for the year ended 31 May 2005. RESULTS AND DIVIDENDS The Group operating profit for the period, before depreciation and amortisation of goodwill arising from the initial acquisition of Caff Nero and the acquisition of Aroma Ltd and before exceptional items, was 11,817,000 (31 May 2004: 6,520,000). The Group operating profit after depreciation, but before amortisation and exceptionals, was 6,511,000 (31 May 2004: 3,076,000). The profit for the year before tax was 5,101,000 (31 May 2004: 1,694,000). The directors do not recommend the payment of an ordinary dividend (2004: nil). PRINCIPAL ACTIVITIES AND REVIEW OF THE BUSINESS Caff Nero is the trading name of a group of high quality Italian style coffee bars. In addition to its core range of high quality espresso-based coffees, Caff Nero offers an array of pastries, baked goods, freshly made panini, sandwiches, salads and pastas, as well as its own cakes and biscotti. A review of the current business and future prospects is given in the Chairmans Statement on page 5. DIRECTORS AND THEIR INTERESTS During the year, the directors and their interests in the share capital of the company were as follows:
At 31 May 2005 ordinary shares of 0.5p each At 1 June 2004 ordinary shares of 0.5p each
CREDITOR PAYMENT POLICY AND PRACTICE It is the Groups policy that payments to suppliers are made in accordance with those terms and conditions agreed between the Group and its suppliers, provided that all trading terms and conditions have been complied with. At 31 May 2005, the Group had an average of 70 days purchases outstanding in trade creditors. SUBSTANTIAL SHAREHOLDINGS As at 13 September 2005, the following shareholders had notified the company of their interest in holdings of 3% or more of any one class of voting shares.
No of Percentage Ordinary Shares of issued of 0.5p each share capital
Paladin Partners 1 Saratoga Limited Fidelity Investment Services Limited Goldman Sachs Group Inc Bellepoint Limited
EMPLOYEES The Group provides employees with information concerning trading, business development and other appropriate matters through formal and informal briefings. Employees are consulted on a regular basis to ensure their views are taken into account in making decisions likely to affect their interests. The Group gives full and fair consideration to the employment of disabled people, including the continuation in employment of employees who have become disabled. All employees are given equal opportunities for training and promotion, having regard to their particular aptitudes and abilities. The Group has Enterprise Management Incentive, Unapproved and Approved Option Schemes. Options are granted to reward performance and encourage employee loyalty. Subject to length of service, the schemes extend from senior management to branch manager level. DONATIONS No contributions were made for either charitable or political purposes.
M J Barnes has a beneficial interest in 71,500 ordinary shares held through Paladin Partners 1 (2004: 71,500) and 70,660 ordinary shares held directly (2004: 70,660)
Details of directors share options are shown on page 15. RE-ELECTION OF DIRECTORS Details of directors service contracts are referred to in the report on remuneration on pages 15 to 17. B J Price and J D King will retire by rotation and offer themselves for re-election at the forthcoming Annual General Meeting. (see page 9 for their details)
10
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 DIRECTORS REPORT
INTERNATIONAL FINANCIAL REPORTING STANDARDS The Board is mindful that, for the year ending 31 May 2006, Caff Nero Group PLCs reported financial information will need to comply with IFRS. We are, therefore, currently reviewing what impact adopting IFRS will have both on the Groups financial statements and the methodologies used for recording both financial and related information. We are ensuring that the likely impact of IFRS on all significant transactions is fully considered. The key impacts of IFRS so far identified by the review are: Recognition of a charge in the profit and loss account, over the relevant vesting period, for share options granted to employees after 7 November 2002 and related deferred tax. Spreading the benefit of rent free periods on store leases over the term of a lease, rather than the period to date of the first rent review and related deferred tax. Goodwill will not be amortised. An impairment review on goodwill in the balance sheet will be performed each year. The accounting for the recognition in 2004 and 2005 of the deferred tax asset arising in Aroma Limited may result in an adjustment to acquisition goodwill and a charge in the profit and loss account. The treatment of this deferred tax asset under IFRS is the subject of ongoing debate and is not yet clear. The previously reported results to 31 May 2005 and balance sheets at 1 June 2004 and 31 May 2005 will be restated and profit and net assets will be impacted by the adjustments above. In addition there will be disclosure changes which are not expected to impact profit and net assets. AUDITORS A resolution to re-appoint Ernst & Young LLP as the companys auditor will be put to the forthcoming Annual General Meeting. By order of the Board
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 DIRECTORS REPORT CONTINUED
11
TOP ITALIAN COFFEE SERVED BY PEOPLE WHO SEEM TO KNOW HOW TO DO IT THE ITALIAN WAY
HARDENS, LONDON RESTAURANTS 2005
12
CORPORATE GOVERNANCE
COMBINED CODE STATEMENT The directors recognise the importance of adopting good corporate governance practices in the best interests of all shareholders. During the year, the Company applied the principles of good governance set out in section 1 of the Combined Code (the Code) in the following ways: DIRECTORS The Board The Board comprises two executive directors and two non-executive directors. Their biographies appear on page 9. A review of these shows a range of experience and expertise sufficient to bring independent judgement on issues of strategy, performance, resources and standards of conduct which is vital to the success of the Group. Both non-executive directors hold shares and share options (as disclosed on pages 10 and 16) and M J Barnes is a non-executive director of Interior Services Group PLC, where J D King is CEO. However, because the number of shares and share options held by the non-executive directors is small and there are no cross directorships between executive and non-executive directors, the non-executive directors are considered by the Board to be independent. Board meetings At Board meetings the agenda normally comprises a review of the management financial statements, a report on the progress of the store roll out and an update on the progress of the Groups other strategic objectives, with directors reporting on their areas of responsibility. The Board meetings in September and January also cover the approval of the preliminary and interim financial results respectively and the May meeting deals with the approval of the annual budget. The Board is responsible to the shareholders for the proper management of the Group. A statement of directors responsibilities in respect of the financial statements is set out below. To enable the Board to discharge its duties, all directors receive appropriate and timely information. Briefing papers are distributed to all directors in advance of board meetings. There is a formal schedule of matters reserved for the Board, these include the determination of strategy, approval of major corporate acquisitions and budget and capital expenditure programme approvals. Matters delegated to the executives include store acquisitions and disposals and most operational issues. The Board met six times during the year; all directors attended all meetings except J D King, who was unavailable for one meeting. The non-executive directors meet regularly without the executive directors present. The company secretary is responsible to the Board for ensuring that the Board procedures are followed and that applicable rules and regulations are complied with. There is an agreed procedure for directors to take independent professional advice.
Chairman and Chief Executive Dr Ford is both Chairman and Chief Executive, which does not comply with Code Provision A.2.1. However, the directors consider that this is appropriate at the companys current stage of development. Dr Ford has no other significant commitments which constrain his ability to fulfil his role. Re-election All directors are required to submit themselves for re-election at least every three years. The Companys Articles of Association require newly appointed directors to submit themselves for election by shareholders at the next Annual General Meeting. B J Price and J D King will retire by rotation and offer themselves for re-election at the forthcoming Annual General Meeting (see page 9 for their details) Board evaluation A formal process for board evaluation has been introduced following the year ended 31 May 2005. This consists of the appraisal of the Chairman by the independent non-executive directors, the appraisal of the other executive director by the Chairman, and the appraisal of the non executive directors by the executive directors. Should action be required as a result of the process, the Chairman will make the necessary arrangements. Board committee structure The Board has the following committees for which terms of reference are available on request: The Remuneration Committee consists of the Boards two non-executive directors, John Barnes (who is Chairman) and David King. They are advised by the Chief Executive, Gerry Ford. Application of the Code principles on directors remuneration may be seen in the report on remuneration on pages 15 to 17. The Remuneration Committee met twice during the year with all members in attendance. The Nomination Committee was set up during the year and consists of Gerry Ford (Chairman), John Barnes and David King. It did not meet during the year as there have been no Board vacancies. Should there be an appointment to the Board, the Chairman would ensure that a full, formal and tailored induction programme was put in place. The Audit Committee comprises of the two nonexecutive directors. The Chairman of the committee is David King. The committee complies with written terms of reference, which deal clearly with its authority and duties. The committee met twice during the year and all members attended both meetings. The committees duties include reviewing the scope and results of the audit, its cost effectiveness and the auditors remuneration, the independence and objectivity of the auditors and involvement in the production of annual and interim reports. Other non-audit services provided by the auditors consist of routine tax compliance work and are taken into consideration as part of the review process. Any additional projects are required to be approved by the Audit Committee as they arise to ensure continued independence and objectivity. There is in place a whistle blowing policy which allows staff to raise any concerns in confidence.
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 CORPORATE GOVERNANCE
13
Internal control: risk management During the year, the Group had in place formalised procedures to identify, evaluate and manage significant risks and to enable management to assess and regularly report to the Board on issues relating to business, operational, financial and non-compliance risks. RELATIONS WITH SHAREHOLDERS The Board is always willing to meet with its institutional shareholders and has a programme of such meetings over the year. The Board believes it is most appropriate for the Chairman and Finance Director to hold these meetings. The Code recommends that the nonexecutive directors should maintain sufficient contact with major shareholders to understand their issues and concerns. Although none of the non-executive directors have had direct contact with shareholders during the year, which is non-compliance with the Code, feedback from analysts and shareholders is given to them through analyst response packs and they are willing to be contacted by shareholders should they have any concerns that cannot be resolved through the normal channels. Compliance The Board believes that during the year the Group complied with the provisions set out in the Code with the following exceptions: Code Provision A.1.5 There was no directors and officers liability insurance during the year. During the coming year, the Board has agreed to review the situation to determine if such insurance is appropriate. Code Provision A.2.1 Dr Ford is both Chairman and Chief Executive. However, the directors consider that this is appropriate at the Companys current stage of development. Code Provision A.3.3 No senior non-executive director has been appointed as both non-executives are deemed to have similarly appropriate experience for a business of this size. Code Provision A.6.6 The directors are in the process of introducing an evaluation process for the Board, its members and committees; however, no such evaluation took place during the year. Code Provision A.7.2 The non-executive directors are appointed on rolling contracts with three month notice periods as opposed to a specific term as required by the Code. During the 2005/2006 year, the Board has agreed to review this situation. Code Provision C.3.1 Neither of the members of the audit committee has recent relevant financial experience under the terms of the Code. However, both members have had considerable exposure to financial reporting as CEOs and non-executives of other businesses. As the Group becomes larger, the Board will review if a financial specialist may also be required.
The Board acknowledges that it is responsible for the Groups systems of internal control and for the continuing process of reviewing their effectiveness. During the year and up to the date of approval, the process accorded with the Turnbull guidance with particular regard to ensuring that appropriate risk management processes were in place. The directors have satisfied themselves that the Group complies fully. Internal control systems are designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The directors confirm that they have reviewed the effectiveness of the systems of internal control that have been in operation during the year. This review entailed the directors considering the significant risks in the business and the controls required to minimise those risks. The results of this review have been documented and will be reviewed and updated on a regular basis. The Group has an internal branch audit function. During the year, the Board reviewed whether there was a need to extend this function and concluded that it was desirable to continue with the current arrangements. Internal control: financial The internal control process has now been reviewed and its main features are: Financial Reporting: there is a comprehensive budgeting system with an annual budget approved by the Board. Monthly trading results are reported against the corresponding figures for the budget and previous year. Capital Expenditure: there is a comprehensive budgeting system for capital expenditure with an annual budget approved by the Board. A committee comprising Gerry Ford, Ben Price and other senior management has been set up to appraise and authorise individual material items of capital expenditure. Cashflow: an annual cashflow forecast is drawn up and approved by the Board and actual cashflow is reviewed monthly against this forecast. Organisational Structure: a clear organisational structure with defined responsibilities and clear authority levels has been set. Branch Audit: a branch audit function exists to ensure that Group procedures regarding cash and stock handling are being adhered to in the cafs.
14
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 CORPORATE GOVERNANCE CONTINUED
22-Mar-01
May-04
May-05
The TSR level shown at 31 May each year is the average of the closing daily TSR levels for the 30 day period up to and including that date. This graph has been produced in accordance with the requirements of the Directors Remuneration Report Regulation 2002.
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 DIRECTORS REMUNERATION REPORT
15
G W Ford B J Price
M J Barnes J D King
(1)
At 1 June 2004 B J Price held 554,125 options granted on 29 January 1999. On 11 November 2004 B J Price exercised 200,000 options under the Caff Nero Unapproved Option Scheme and sold the shares. The market price on date of exercise was 99p creating a gain of 150,039. (2) At 1 June 2004 J D King held 203,775 options granted on 16 March 2001. On 11 February 2005 J D King exercised 100,000 options under the Caff Nero Unapproved Option Scheme and sold the shares. The market price on date of exercise was 1.46 creating a gain of 96,264.
These options were granted before the flotation of the Company and are not subject to performance criteria. The market price of the shares varied between 85p and 204p during the year. The market price at 31 May 2005 was 204p. There have been no additional grants or exercises of shares or share options since the year end. Performance related options and bonuses On 26 June 2003 additional performance related share options and bonuses were granted to the executive directors under the EMI and unapproved schemes: All the options and bonuses listed below are dependent upon meeting stringent performance criteria and align the directors clearly with the interests of shareholders by requiring them to drive the profitability of the Group by in excess of 80% per annum over the three year period. Exercise dates are between the relevant vesting date and 26 June 2013. All options are over ordinary shares. Options
Vesting Dates Number 31 May 2004 Exercise price Number 31 May 2005 Exercise price Number 31 May 2006 Exercise price
G W Ford B J Price
1,800,000 350,000
24p 24p
31 May 2004 Performance bonus
1,000,000 350,000
31 May 2005 Performance bonus
24p 24p
31 May 2006 Performance bonus
Bonuses
G W Ford B J Price
60,000 40,000
31 May 2004
65,000 20,000
31 May 2005
60,000 20,000
31 May 2006
If the basic EPS of the Group fails to reach the base level EPS target in any year, then no options or bonuses are earned in that year. Between the base level and the middle level options are earned on a straight line basis, so that if basic EPS equals or exceeds the middle level EPS target 100% of the options are earned. Above the middle level EPS target, the bonuses start to be earned on a straight line basis up to the maximum EPS target so that if basic EPS exceeds the maximum EPS target all of the bonuses are earned.
16
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 DIRECTORS REMUNERATION REPORT CONTINUED
EPS Performance Targets (Continued) The performance options granted for the years ended 31 May 2004 and 31 May 2005 have vested in full as the maximum EPS targets have been achieved. Similarly the bonuses for the year ended 31 May 2005 have been earned and are included in the remuneration table below. Pensions A pension contribution of 8,550 (2004: 7,750) accrued to Gerry Ford during the year. Directors emoluments
Basic salary Bonuses Benefits Total 2005 Total 2004
Benefits represent car allowance, non-cash healthcare benefits. CH Reeve resigned on 22 September 2003. M J BARNES CHAIRMAN OF THE REMUNERATION COMMITTEE 13 September 2005
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 DIRECTORS REMUNERATION REPORT CONTINUED
17
18
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 STATEMENT OF DIRECTORS RESPONSIBILITIES
19
Notes
2005 000
2004 000
Turnover Cost of sales Gross profit Administrative expenses excluding depreciation, amortisation and operating exceptional items EBITDA Administrative expenses depreciation and impairment of tangible fixed assets Operating profit before amortisation and operating exceptional items Administrative expenses amortisation Administrative expenses operating exceptional items Total administrative expenses Operating profit Bank interest receivable Interest payable and similar charges Profit on ordinary activities before exceptionals and taxation Profit on ordinary activities before taxation Tax on profit on ordinary activities Profit for the financial year Earnings per share basic (pence) Earnings per share diluted (pence) Pre-tax earnings per share basic (pence) Pre-tax earnings per share diluted (pence) Group statement of total recognised gains and losses There are no recognised gains or losses other than as shown above
50,547 (39,905) 10,642 (4,122) 6,520 (3,444) 3,076 (496) (224) (8,286) 2,356 101 (763) 1,918 1,694 776 2,470 3.75p 3.37p 2.56p 2.31p
(502) (11,049)
3 6
7 20 9 9 9 9
20
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 GROUP PROFIT & LOSS ACCOUNT
Notes
2005 000
2004 000
Fixed assets Intangible assets Tangible assets Fixed asset investments Current assets Stocks Debtors Cash at bank and in hand Creditors: amounts falling due within one year Net current liabilities Total assets less current liabilities Creditors: amounts falling due after more than one year Provisions for liabilities and charges Capital and reserves Called up share capital Share premium Other reserve Capital redemption reserve Profit and loss account Shareholders funds: Equity
10 11 12
2,240 36,910 39,150 542 2,087 3,982 6,611 (14,006) (7,395) 31,755
2,742 23,456 854 27,052 408 2,270 3,171 5,849 (10,919) (5,070) 21,982 11,166 495 10,321 328 7,121 6,249 15 (3,392) 10,321
13 16 14
15 18
19 20 20 20 20 20
The financial statements were approved by the board of directors and signed on their behalf by: G W FORD B J PRICE DIRECTORS 13 September 2005
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 GROUP BALANCE SHEET
21
Notes
2005 000
2004 000
Fixed assets Investments Creditors: amounts falling due within one year Amounts due to subsidiary undertakings Net current liabilities Capital and reserves Called up share capital Share premium account Capital redemption reserve Profit and loss account Shareholders funds: Equity
12
19 20 20 20
The financial statements were approved by the board of directors and signed on their behalf by: G W FORD B J PRICE DIRECTORS 13 September 2005
22
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 COMPANY BALANCE SHEET
Notes
2005 000
2004 000
Net cash inflow from operating activities Returns on investments and servicing of finance Interest received Interest paid Issue costs of new long-term loans Capital expenditure Payments to acquire tangible fixed assets Net cash outflow before financing Financing Issue of ordinary share capital Share buy back Share buy back costs New long-term loans Repayment of long-term loans Increase/(decrease) in cash
3(b)
15,253 108 (993) (54) (939) (16,911) (2,597) 408 3,000 3,408
7,467 101 (776) (20) (695) (10,230) (3,458) 133 (580) (91) 2,000 (500) 962 (2,496)
16
811
Increase/(decrease) in cash Cash inflow from increase in long-term loans Issue costs of long-term loans Repayment of loans Change in net debt resulting from cash flows Other non-cash movements Movement in net debt Net debt at 1 June Net debt at 31 May Other non cash movements relate to amortisation of loan issue costs. 16
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 STATEMENT OF CASH FLOWS/RECONCILIATION OF NET CASH FLOW
23
1. ACCOUNTING POLICIES Accounting convention The financial statements are prepared under the historical cost convention and in accordance with applicable accounting standards. The accounting policies have been applied consistently and remain unchanged from the previous year. Basis of consolidation The Group financial statements consolidate the financial statements of Caff Nero Group PLC and all its subsidiary undertakings drawn up to 31 May of each year. No company profit and loss account has been presented for Caff Nero Group PLC as permitted by section 230 of the Companies Act 1985. Subsidiary undertakings have been included in the Group financial statements using the acquisition method of accounting. Accordingly the Group Profit and Loss Account and Statement of Cash Flows include the results and cash flows of subsidiaries from the date of acquisition. The purchase consideration has been allocated to the assets and liabilities on the basis of fair value at the date of acquisition and any excess has been capitalised as goodwill. Goodwill Positive goodwill arising on acquisitions is capitalised, classified as an asset in the balance sheet and amortised on a straight line basis over its useful economic life. It is reviewed for impairment if events or changes in circumstances indicate that the carrying value may not be recoverable. Depreciation Depreciation is provided on all tangible fixed assets at rates calculated to write off the cost, less estimated residual value based on prices prevailing at the date of acquisition, of each asset evenly over its expected useful life, as follows: Short leasehold property over the lease term Leasehold improvements over the lease term Furniture, fittings and equipment over 3 to 5 years The carrying values of tangible fixed assets are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. Investments Fixed asset investments are stated at cost. The carrying value of fixed asset investments is reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. Store opening costs Operating costs incurred by stores prior to opening are written off to the profit and loss account in the period in which they are incurred. Stocks Stocks are stated at the lower of cost and net realisable value. Stocks comprise food and packaging goods for resale. Leasing commitments Rentals payable under operating leases are charged in the profit and loss account on a straight line basis over the lease term. Deferred taxation Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events have occurred at that date that will result in an obligation to pay more, or right to pay less or to receive more tax, with the following exception: Deferred tax assets are recognised only to the extent that the directors consider that it is more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing differences can be deducted. Deferred tax is measured on an undiscounted basis at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and laws enacted or substantively enacted at the balance sheet date. Capital instruments Shares are included in shareholders funds. Other instruments are classified as liabilities if they contain an obligation to transfer economic benefits and if not they are included in shareholders funds. The finance costs recognised in the Profit and Loss Account in respect of capital instruments other than equity shares are allocated to periods over the term of the instrument at a constant rate on the carrying amount. Cost of share option schemes In accordance with UITF Abstract 17 Employee Share Schemes, the company recognises a charge to the Profit and Loss Account for the amount by which the fair market value of any share options expected to be exercised exceeds their exercise price on the date of grant. These costs are recognised on a straight line basis over the performance period to which they relate.
24
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS
2. TURNOVER Turnover, which is stated net of value added tax, represents amounts received and receivable from the Groups principal continuing activity: the operation of high quality Italian style coffee bars. All of the turnover is derived in the United Kingdom. 3. OPERATING PROFIT (a) This is stated after charging:
2005 000 2004 000
Auditors remuneration audit services non-audit services Costs relating directly to opening new sites Exceptional items (see note 4) Depreciation of owned fixed assets Impairment of tangible fixed assets Amortisation of goodwill Operating lease rentals land and buildings
* 5,000 (2004: 5,000) of this relates to the company.
(b) Reconciliation of operating profit to net cash inflow from operating activities:
2005 000 2004 000
Operating profit Amortisation Depreciation Impairment provision Increase in stocks Decrease/(increase) in operating debtors and prepayments Increase in operating creditors and accruals Decrease in provisions for liabilities and charges
4. EXCEPTIONAL ITEMS
2005 000 2004 000
During the year ended 31 May 2004 the onerous lease at Oxford Street was assigned. The assignee subsequently went into liquidation and the costs related to the assignment were included in the profit and loss account for the year as an exceptional item. 5. STAFF COSTS Details of directors remuneration, which is included in the amounts below, are given in the remuneration report on pages 15 to 17.
2005 000 2004 000
The average monthly number of employees during the year was as follows:
2005 No. 2004 No.
Operational Administration
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
25
1,016
763
2005
2004
148 148
(776) (776)
b) Factors affecting current tax for the year The tax assessed for the year differs from the standard rate of corporation tax in the UK of 30% (2004: 30%). The differences are explained below:
2005 000 2004 000
Profit on ordinary activities before tax Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2004: 30%) Effect of: Expenses not deductible for tax purposes (including goodwill amortisation) Share option tax deduction Capital allowances for the period in excess of depreciation Other timing differences Tax losses utilised Current tax charge for the period
5,101
1,694
c) Deferred tax Deferred tax recognised in the financial statements and the amounts not recognised are as follows:
2005 Not recognised 000 2004 Not recognised 000
Recognised 000
Recognised 000
Decelerated/(accelerated) capital allowances Other timing differences Tax losses Deferred tax asset Movements in the recognised deferred tax asset are as follows:
85 56 141
000
At 1 June 2004 Profit and loss account movement arising during the year At 31 May 2005
Deferred tax assets are recognised once it is considered more likely than not that they will be recoverable against future taxable trading profits arising in the Group. d) Factors that may affect future tax charges The deferred tax asset on trading losses has been recognised in full which will give rise to an increase in the effective tax rate in the future.
26
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
8. PROFIT ATTRIBUTABLE TO MEMBERS OF PARENT COMPANY The profit relating to transactions in the financial statements of the parent company was nil. (2004: nil) 9. EARNINGS PER SHARE The calculation of the earnings per ordinary share for the year ended 31 May 2005 is based on a profit of 4,953,000 (2004: 2,470,000) and 66,095,595 ordinary shares (2004: 65,942,837), being the weighted average number of ordinary shares in issue during the year. The diluted earnings per share for the year ended 31 May 2005 is based on 80,089,714 ordinary shares (2004: 73,390,098), which is calculated by including the weighted average number of shares being 13,994,119 ordinary shares (2004: 7,447,261) relating to potential dilution from share options. The calculation of the pre-tax earnings per ordinary share for the year ended 31 May 2005 is based on the profit on ordinary activities before taxation of 5,101,000 (2004: 1,694,000) and the same number of shares as above. Pre-tax earnings per share are presented because the recognition of deferred tax assets during the current and prior years have distorted the comparability of the post-tax earnings per share figures. 10. INTANGIBLE FIXED ASSETS
Goodwill 000
Cost: At 1 June 2004 and 31 May 2005 Amortisation: At 1 June 2004 Provided during the year At 31 May 2005 Net book value: At 31 May 2005 At 1 June 2004
Goodwill arising on the acquisition of the Caff Nero business in 1997 is being written off in equal annual instalments over its estimated economic life of 8 years. Goodwill arising on the acquisition of Aroma Limited in 2002 is being written off in equal instalments over its estimated economic life of 20 years. 11. TANGIBLE FIXED ASSETS
Short leasehold property 000 Leasehold improvements 000 Furniture, fittings and equipment 000 Total 000
Group
Cost or valuation: At 1 June 2004 Additions At 31 May 2005 Depreciation: At 1 June 2004 Provided during the year Impairment of fixed assets At 31 May 2005 Net book value: At 31 May 2005 At 1 June 2004 The Company balance sheet contains no tangible fixed assets.
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
27
854 (854)
The investment represented 24,300,000 shares in Coffee Republic PLC. On 10 June 2004 Caff Nero acquired 8 stores from Coffee Republic PLC in return for 730,000 of cash and the surrender of the Coffee Republic shares with the proceeds being paid to Coffee Republic PLC.
Shares in subsidiary undertakings 000
Company
9,724
In the opinion of the directors, the aggregate value of the investment in subsidiary undertakings is not less than the amount at which it is stated in the balance sheet. The Company holds all the equity share capital of Nero Holdings Limited which operates Italian style coffee bars. Nero Holdings Limited holds all the equity share capital of Aroma Limited which also operates coffee bars. The results of these companies have been consolidated in these financial statements. Both companies are registered in England and Wales. 13. DEBTORS
Group 2005 000 Group 2004 000
Other debtors of 298,000 (2004: 219,000) is due after more than one year (relating to lease deposits paid). 14. CREDITORS: amounts falling due within one year
Group 2005 000 Group 2004 000 Company 2005 000 Company 2004 000
Bank loan (see note 15) Trade creditors Amount due to subsidiary undertaking Other creditors, including taxation and social security Accruals and deferred income
60 60
576 576
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CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
15. CREDITORS: amounts falling due after more than one year
Group 2005 000 Group 2004 000
Loans: Wholly repayable within 5 years: Bank of Scotland loan Less: included in creditors falling due within one year
15,535 15,535
Group 2005 000
Amounts repayable: in one year or less between one and two years between two and five years Less: unamortised issue costs
Bank of Scotland loan During the year the total available facilities were increased from 16,200,000 to 19,200,000 and the repayment schedule was re-phased. At the year end additional facilities of 3.5m were available to be drawn down (subject to certain performance criteria) over the coming year in two tranches to finance the continued expansion of the business. Of these facilities, 1.5m has been drawn down post year end. Until 31 December 2004 the loans incurred interest at between 1.5% and 2.25% above LIBOR. From 1 January 2005 the interest rate was reduced to 1.25% above LIBOR. The loan is secured by a floating charge on the assets of the Group. The Company had no debt itself. 16. ANALYSIS OF NET DEBT
At 1 June 2004 000 Cash flow 000 Non cash changes 000 At 31 May 2005 000
Group
Cash at bank and in hand Debt due within one year Debt due after one year
Non cash changes The total non cash changes relate to the amortisation of loan issue costs. The changes between debt due within one year and more than one year relate to changes in debt repayment periods.
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
29
17. FINANCIAL INSTRUMENTS The Groups principal financial instruments comprise bank loans and cash. The main purpose of the financial instruments is to provide finance for the Groups operations. The Group has various other financial instruments, such as trade creditors, that arise directly from its operations. The disclosures below exclude short term debtors and creditors. It is, and has been throughout the year under review, the Groups policy that no trading in financial instruments shall be undertaken. The main risks arising from Groups financial instruments are interest rate risk and liquidity risk; there is no currency risk as all financial instruments are held in sterling. The Board reviews and agrees policies for managing each of these risks and these policies are summarised below. Interest rate risk The Group borrows in sterling at floating rates of interest. Excess cash is placed on short term deposit for up to a week with Bank of Scotland at variable money market rates. Liquidity risk The Groups objective is to maintain a balance between continuity of funding and flexibility through the use of bank loans and facilities. Interest rate risk profile of financial assets and liabilities The interest rate profile of the financial assets and liabilities, excluding short term creditors, of the Group at each year end denominated in sterling were as follows:
Group 2005 000 Group 2004 000
Floating rate cash and deposits Floating rate loans Financial liabilities on which no interest accrues
The floating rate financial liabilities bear interest at rates based at varying percentages above LIBOR and the UK base rate as set out in note 15. Floating rate cash and deposits earn interest at rates linked to LIBOR. Maturity of financial liabilities The maturity profile of the Groups financial liabilities at each relevant period or year end was as set out in note 15. Borrowing facilities The Group has various borrowing facilities available to it. The undrawn committed facilities available at each relevant period or year end were as follows:
Group 2005 000 Group 2004 000
3,500
3,000
Fair values of financial assets and liabilities The book values of financial assets and liabilities of the Group are set out below. The directors consider that there were no material differences between the book values and fair values of all the Groups financial assets and liabilities at each year end.
Group 2005 000 Group 2004 000
Cash at bank and in hand Current portion of long term borrowings Long term borrowings Onerous contract Of these facilities, 1.5m has been drawn down post year end.
The Groups fixed asset investment at 31 May 2004 represented 24,300,000 shares in Coffee Republic PLC. On 10 June 2004 Caff Nero acquired 8 stores from Coffee Republic PLC for 730,000 of cash and the Coffee Republic shares were surrendered with the proceeds being paid to Coffee Republic PLC.
30
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
At 1 June 2004 Utilised: Costs of disposal Rent for the year Additional lease incentives At 31 May 2005
93 (65)
28
The provisions for disposal sites represent the anticipated costs of disposal of the sites acquired with Aroma Limited which the Group has decided to sell. The provisions will be utilised as appropriate opportunities to sell the sites arise. The onerous contract provision represents the period of rent whilst the sublease is being negotiated and the anticipated lease incentives to sublet of the property. The lease on the unit expires in 2020. 19. SHARE CAPITAL
Authorised 2005 No. 2004 No. 2005 000 2004 000
100,000,000
100,000,000
500
500
2005 No.
2004 000
66,853,739
65,604,025
334
328
On 9 June 2004, 71,450 ordinary shares of 0.5p were allotted, issued and fully paid for total cash consideration of 35,725 in relation to the exercise of options at 50.00p per share. On 4 November 2004, 36,214 and 343,150 ordinary shares of 0.5p were allotted, issued and fully paid for total cash consideration of 181,171 in relation to the exercise of options at 26.50p and 50.00p per share respectively. On 11 November 2004, 200,000 ordinary shares of 0.5p were allotted, issued and fully paid for total cash consideration of 48,960 in relation to the exercise of options at 24.48p per share. On 10 February 2005, 6,000, 23,500 and 269,400 ordinary shares of 0.5p were allotted, issued and fully paid for total cash consideration of 142,447 in relation to the exercise of options at 24.50p, 26.50p and 50.00p per share respectively. On 25 May 2005, 300,000 ordinary shares of 0.5p were allotted, issued and fully paid for total cash consideration of 73,440 in relation to the exercise of options at 24.48p per share.
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
31
19. SHARE CAPITAL (CONTINUED) At 31 May 2005, options had been granted and remained outstanding as detailed below (excluding directors options shown in the Directors Remuneration Report).
Date of grant Number of Option exercise ordinary shares price (p) Exercisable
29 January 1999 1 April 2000 16 March 2001 19 February 2002 11 November 2002 28 November 2003 28 March 2004 14 May 2004 4 February 2005
Until 1 July Until 31 December Until 15 March Until 19 February Until 11 November 1 June 2006 to 28 November 1 June 2007 to 28 March 1 June 2007 to 14 May 1 June 2007 to 4 February
300,000 of the options granted on 29 January 1999 at 24.48p per share, 584,000 of the options granted on 16 March 2001 at 50p per share, 59,714 of the options granted on 19 February 2002 at 26.5p per share and 6,000 of the options granted on 11 November 2002 at 24.5p per share were exercised during the year. 15,000 of the options issued on 19 February 2002 at 26.50p, 111,500 of the options issued on 11 November 2002 at 24.50p and 40,000 of the options issued on 28 March 2004 at 84p per share lapsed during the year. The 920,000 options granted on 28 November 2003 are exercisable subject to the Group reaching certain profit targets over the three years ending 31 May 2006. 745,000 of the 794,000 options granted on 28 March 2004 and the 60,000 options granted on 14 May 2004 are exercisable subject to the Group reaching certain profit targets over the three years ending 31 May 2007. 567,000 of the 604,000 options granted on 4 February 2005 are exercisable subject to the Group reaching certain profit targets over the three years ending 31 May 2008. 20. RESERVES AND RECONCILIATION OF SHAREHOLDERS FUNDS
Share capital 000 Share premium account 000 Other reserve 000 Capital redemption reserve 000 Profit and loss account 000
Group
Total 000
At 1 June 2003 Share premium reduction Share buyback Capital maintenance Share buyback costs Shares issued UITF 17 charge Profit for the year At 31 May 2004 Shares issued UITF 17 charge Profit for the year At 31 May 2005
341 (15)
9,390 (2,400)
6,249
8,248 (580) (91) 133 141 2,470 10,321 481 35 4,953 15,790
15 2 131
328 6
7,121 475
6,249
15
(3,392) 35 4,953
334
7,596
6,249
15
1,596
32
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
Company
Total 000
At 1 June 2003 Share premium reduction Share buyback Capital maintenance Share buyback costs Shares issued UITF 17 charge At 31 May 2004 Shares issued UITF 17 charge At 31 May 2005
341 (15)
9,390 (2,400)
15
2 328 6 334
21. CONTINGENT LIABILITY There is an unlimited cross guarantee in favour of the Groups bankers covering the term loans of Caff Nero Group PLC and its subsidiaries. 22. CAPITAL COMMITMENTS At 31 May 2005, capital commitments contracted but not provided for in the financial statements were 1,034,000 (2004: 432,000). 23. OTHER FINANCIAL COMMITMENTS Annual commitments under non-cancellable operating leases are as follows:
Group Land and buildings 2005 2004 000 000
Operating leases which expire: within one year between two and five years over five years
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES TO THE FINANCIAL STATEMENTS CONTINUED
33
Notice is hereby given that the Annual General Meeting of the Company will be held at College Hill, 78 Cannon Street, London EC4N 6HH on the 8th November 2005 at 10am to consider and if thought fit pass the following resolutions of which numbers 1 to 7 will be proposed as ordinary resolutions and number 8 will be proposed as a special resolution: Ordinary Resolutions 1. To receive and adopt the Report of the Directors and Auditors and the Financial Statements for the period ended 31 May 2005. 2. To approve the directors Remuneration Report. 3. To Re-elect Mr B J Price who having been appointed by the Company in general meeting on 12 November 2003 retires and, being eligible, offers himself for re-election. 4. To Re-elect Mr J D King who having been appointed by the Company in general meeting on 12 November 2003 retires and, being eligible, offers himself for re-election. 5. To reappoint Messrs Ernst & Young as Auditors to the Company to hold office until the conclusion of the next Annual General Meeting of the Company and to authorise the directors to fix their remuneration. 6. That the directors be and they are hereby generally and unconditionally authorised to exercise all powers of the Company to allot or grant options or rights of subscription over relevant securities pursuant to section 80 of the Companies Act 1985 up to an aggregate nominal amount of 111,423, such authority to expire fifteen months after passing of this resolution or at the conclusion of the next annual general meeting of the Company whichever occurs first, save that the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the Directors may allot relevant securities in pursuance of such an offer or agreement as if the authority hereby conferred had not expired. 7. That the Company be and is hereby generally and unconditionally authorised for the purpose of section 166 of the Companies Act 1985 (the Act) to make one or more market purchases (within the meaning of section 163(3) of the Act) on the London Stock Exchange of ordinary shares of 0.5p each in the capital of the Company (ordinary shares) provided that: (i) the maximum aggregate number of ordinary shares hereby authorised to be purchased is 3,342,687 (representing 5 per cent of the Companys issued ordinary share capital); (ii) the minimum price which may be paid for such shares is 0.5p per share (exclusive of relative tax and expenses); (iii) the maximum price (exclusive of relative tax and expenses) which may be paid for an ordinary share shall be not more than 5 per cent above the average of the market values for an ordinary share as derived from the London Stock Exchange Daily Official List for the 5 business days immediately preceding the date on which the ordinary share is purchased; (iv) unless previously renewed, varied or revoked, the authority hereby conferred shall expire at the conclusion of the next annual general meeting of the Company to be held in 2006 or within 12 months from the date of passing this resolution whichever shall be the earlier; and (v) the Company may make a contract or contracts to purchase ordinary shares under the authority hereby conferred prior to the expiry of such authority which will or may be executed wholly or partly after the expiry of such authority and may make a purchase of ordinary shares in pursuance of any such contract or contracts. Special Resolution 8. That, subject to the passing of the previous resolution 6, the Directors be empowered to allot equity securities (as defined in section 94(2) of the Companies Act 1985) for cash pursuant to section 95 of the Companies Act 1985 and the authority referred to in 6 above as if section 89(1) of the Act did not apply to the allotment provided that such power shall be limited to: a) the allotment of equity securities (whether by way of rights issue, open offer or other pre-emptive offer) in favour of ordinary shareholders where the equity securities respectively attributable to the interests of all shareholders are proportionate (as nearly as may be) to the respective numbers of shares held by them, but subject to such exclusions or other arrangements as the Directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems arising in or under the laws of territories outside the UK or the requirements of any regulatory body or any stock exchange or otherwise howsoever; and b) the allotment (otherwise than pursuant to sub-paragraph a above) of equity securities up to an aggregate nominal value of 16,713, and shall expire at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution, save that the Company may before such expiry make an offer or agreement which would or might require its securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. By order of the board B.J.Price
SECRETARY
3 Neal Street London WC2H 9PU 13 September 2005
34
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTICE OF ANNUAL GENERAL MEETING
Notes 1. A Member entitled to attend and vote at the Meeting convened by the above Notice may appoint one or more proxies to attend and, on a poll, to vote instead of him. A proxy need not be a member of the Company. Completion of a form of proxy does not preclude a Member from attending and voting at the Meeting in person. 2. A form of proxy is enclosed for your use if desired. To be valid, a duly executed form of proxy for use at the Meeting, together with a power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority, must be deposited at the Companys Registrars, Capita Irg, Bourne House, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, not later than 48 hours before the time for holding of the Meeting or any adjournment thereof. 3. The register of interests of the Directors and their families in the share capital of the Company and copies of the Directors service contracts will be available for inspection at the registered office of the Company on any weekday (Saturdays and Public Holidays excepted) during normal business hours until the meeting and at the place of the Meeting for 15 minutes prior to, and during the Meeting. 4. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, only those members entered on the companys register of members not later than 10 a.m. on 4th November 2005 or, if the meeting is adjourned, shareholders entered on the companys register of members not later than 48 hours before the time fixed for the adjourned meeting, shall be entitled to attend and vote at the meeting.
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTICE OF ANNUAL GENERAL MEETING CONTINUED
35
NOTES
36
CAFF NERO GROUP PLC ANNUAL REPORT & ACCOUNTS 2005 NOTES
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