Annual Review 2009

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20 million meals served every year

Welcome to Tragus – one of the UK’s largest restaurant chain

operators with over 277 sites across the country serving over 20 million meals every year.

ContentsThe Story so far 04

Group Overview and 06 Key Performance Indicators

Chief Executive’s Review 08

Group Financial Review 10

Corporate Social Responsibility 12

Ownership and 16 Management Structure

Principal Risks 18 and Uncertainties

Financial Risks 20

Corporate Governance Report 22

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The story so farn Formed in 2002 via management

buy-in of Pelican Restaurants and BrightReasons Restaurants from Whitbread plc, backed by ECI

n Secondary buyout by Legal & General Ventures in January 2005

n Majority owned by Blackstone since December 2006

n Average annual EBITDA growth of 28.2% from 2003 to 2009

n Acquisition of Strada in 2007

n Leading portfolio of brands including Café Rouge, Strada and Bella Italia

Our strategy• To grow organically by

opening new restaurants.

• Continually developing and improving our existing brands through menu development, marketing initiatives and investment in the estate.

• Improving profitability through disciplined management, the use of technology and procurement initiatives.

• Ongoing investment in people through training and development programmes.

• Providing excellent customer service

• To acquire groups of sites or brands which enhance our portfolio.

• Looking at new opportunities and styles of eating.

Our vision: to be the UK’s best mid-market multi branded restaurant operator by consistently

delivering great food and service in distinctive and attractive restaurant surroundings.

Tragus restaurants as at 24th May 2009

The figures in the table represent the underlying performance of the Group

¹. FY08 and FY09 LfL sales growth / decline represents the key brands of Café Rouge, Bella Italia and Strada.

“While the year to May 2009 was challenging for the restaurant industry, Tragus, with its strong portfolio of brands, continued to perform satisfactorily.

The trading environment remains extremely challenging but the Tragus brands are well placed to benefit as the UK economy strengthens.”

Graham Turner, CEO, October 2009

Year (May)

Number of Restaurants

Turnover £’000

Like for Like Sales growth/

decline %(1)

EBITDA £’000

EBITDA Growth %

FY03 152 95,515 – 9,926 –

FY04 156 101,912 4.4 % 12,823 29.2%

FY05 159 116,590 9.6 % 16,717 30.4%

FY06 159 129,541 7.7 % 22,005 31.6%

FY07 182 148,704 9.7 % 28,201 28.2%

FY08 269 247,838 3.4 % 44,039 56.2%

FY09 277 261,936 -2.3% 44,157 0.3%

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The ability of the Group to finance its roll-out programme is aided by strong cash flows

from the existing business and appropriate bank facilities.

Tragus operates its 277 restaurants as

four divisions

Group Overview and Key Performance Indicators

The Board of Directors and

Executive Management

receive a wide range of

management information

delivered in a timely manner.

Listed below are the principal

measures of progress that are

reviewed on a regular basis

to monitor the development

of the Group.

Like for like salesThis measure provides an indicator of the underlying performance of our existing restaurants and highlights successful development of our offerings to best match changing consumer demands over time. During the financial year, the group like for like turnover declined by 2.3%¹ due to the challenging economic environment faced by UK businesses as consumer demand declined.

EBITDAThe Group defines EBITDA as operating profit before depreciation, amortisation and non-trading items. EBITDA serves as a useful proxy for cash flows generated by operations and is closely monitored. During the year the group generated £44.2m EBITDA, an increase of 0.3% on the prior year.

The ability of the Group to finance its roll-out programme is aided by strong cash flows from the existing business and appropriate bank facilities.

New restaurants openedDuring the year ended May 09, the Group opened 14 new sites across the three key brands and plans to open around 15 new sites in the current financial year.

The expansion of our brands is a key driver of the Group’s growth and profitability. Potential new sites are subject to a rigorous appraisal process before they are presented to the Board for approval. This process ensures we maintain the quality of sites while the appropriate quantity are developed.

The investment into growing the estate has proved extremely successful with an average CROI ² of 25.7% on the new sites opened during the last three years and trading for more than six months.

¹ FY09 LFL sales decline represents key brands of Café Rouge, Bella Italia and Strada

² CROI is defined as cash return on investment. It is EBITDA of a site expressed as a percentage of the capital cost

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Whilst this difficult environment is forecast to continue, we believe that Tragus is well placed to

meet these challenges due to the strength and breadth of our brands.

Chief Executive’s Review

The financial year ended

24th May 2009 saw Tragus

maintain profitability in

what has been a very

difficult year for consumer

facing businesses in the UK.

This represents a resilient

performance given the

deterioration in the UK

economy.

A total of 14 new restaurants were opened in the year under review; five Café Rouges, five Bella Italias and four Stradas. These included our ninth restaurant under our concession agreement with Center Parcs and a Café Rouge in the BAA operated Gatwick North Terminal.

Restaurants that have opened in the last three years, and opened for at least six months, have delivered strong returns with a CROI of 25.7%.

The overall trading environment was challenging during the year due to weak economic conditions and associated pressures on consumer spend. The poor summer weather in 2008 restricted growth, particularly at Café Rouge whose estate has a large number of outside terraces and a café culture.

Like for like sales for our key brands declined by 2.3% against the background of a difficult economic climate. This is a highly creditable performance and reflects our ongoing service and quality initiatives and the strength of our brands. In addition, we have undertaken a higher than normal level of promotional activity, with a particular focus on online marketing, in order to promote sales and offer our customers additional value propositions.

We continue to face inflationary cost pressures on our input costs. We always keep our menu content under regular review, and have mitigated cost increases through the regular re-tendering of our contracts.

New legislation on the handling of tips and service charge in relation to National Minimum Wage came into effect on October 1st 2009 and we have taken steps to ensure we are fully compliant. In addition, we are adopting industry best practice with

regards to the disclosure of our tips and service charge policy.

Given the weaker economy and continued pressure on our input costs, we have undertaken a thorough review of our cost base. This has included the reorganisation of head office and the introduction of a new payroll and labour management system. These initiatives have resulted in significant cost savings.

Whilst this difficult environment is forecast to continue, we believe that Tragus is well placed to meet these challenges due to the strength and breadth of our brands, our popular price points and value for money offerings and the fact that eating out continues to be a habitual lifestyle choice.

During the year the Company repurchased £24.5m of its senior debt at a cost of £9.7m. The business continues to be highly cash generative and, in addition, has access to further financing facilities if required.

We expect to open circa 15 new restaurants during the year. These include two further airport concessions in Gatwick South Terminal and Heathrow Terminal 4 and a number of prime sites in Central London. We see considerable potential for growth in the UK of our key brands Café Rouge, Strada and Bella Italia.

The casual dining sector continues to have excellent medium to long term growth potential and Tragus is well placed to take advantage of the opportunities as they arise.

Graham Turner Chief Executive Officer Tragus Group Ltd 27 October 2009

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Revenue increased by £14.1m from £247.8m in 2008 to £261.9m in 2009.

Group Financial Review

The financial performance

of the Group was satisfactory

given the difficult economic

climate. It was a year of

consolidation and ensuring

our cost base was suitable for

the challenges ahead.

The Directors have prepared the financial statements on a going concern basis consistent with their view, formed after reviewing the Group’s cash flow forecasts and trading budgets, that the Group is operationally and financially robust and will generate sufficient cash to meet its borrowing requirements for the next 12 months.

The revenue increase was driven by: the opening of 14 new sites during the year and the full year effect of our FY08 openings offset by a like for like decrease of 2.3%¹. Group EBITDA (excluding non recurring items) was up £0.2m, with the increased revenue being substantially offset by an increase in cost of sales, utility costs and increased rent payments.

In May, the Group repurchased £24.5m of its senior debt at a cost of £9.7m. The total gain of this transaction of £14.8m has been treated as an exceptional item in the financial statements. Offset against this were exceptional items relating to goodwill adjustments, non-operating site costs and reorganisation costs.

CashflowTragus remains highly cash generative. During the year, net cash flow from operations was £42.8m of which £17.7m was reinvested into the business as capital expenditure

Tragus’ capital expenditure programme is targeted at both maintaining the quality of the existing estate and investing in new restaurants. All capital projects are individually appraised both operationally and financially and clear project return targets are set to assess the viability and priority of capital expenditure projects.

Bank BorrowingsAt the end of the year bank debt1 was £286.5m, compared with £301.9m at the end of the previous year. The decrease in bank debt is primarily due to the debt buy back. Bank debt is partially offset by cash of £16.9m (2008: £15.8m).

Net bank debt2 of £269.6m equates to leverage of 6.1 x 2009 EBITDA.

Tragus’ bank borrowings are available under a Facilities Agreement which was originally put in place in December 2006 following the acquisition of the Group by Blackstone and amended in July 2007 following the acquisition of Strada. The Facilities Agreement is long-term and repayment is due as follows: • Acquisition/capital facility 2012-2014 • Revolving credit facility 2014 • Senior loans facility 2015-2017 The Facilities Agreement requires Tragus to comply with certain financial covenants. The financial covenants include annual limitations on capital expenditure and require the maintenance of certain minimum ratios of EBITDA to both net interest payable and net debt. In addition, there is a requirement that the net operating cash flows generated are not less than Tragus’ cash cost of funding the bank debt. The Facilities Agreement is secured by a fixed and floating charge over certain of the Group’s assets. Tragus is fully compliant with its covenant requirements. Further detail on the Group’s borrowings is set out in the financial statements.

In addition, the Facilities Agreement has a revolving facility of £20m, which is available to finance working capital requirements and for general corporate purposes, and an acquisition/capital investment facility of £40m. As at 24 May 2009, these were drawn down by £14m and £16m respectively.

Mohan Mansigani Chief Financial Officer Tragus Group Ltd 27 October 2009

1 Bank debt is defined as outstanding senior loans, capital expenditure facility, revolving credit facility plus accrued interest.

2 Net bank debt is defined as bank debt less cash.

The financial highlights for the yearn Revenue increased by £14.1m from £247.8m

in 2008 to £261.9m in 2009

n EBITDA (excluding non recurring items) increased by £0.2m from £44.0m to £44.2m

n Cash generated from operations of £42.8m

n Capital investment of £17.7m during the year for the opening of new restaurants, refurbishments, rebranding and maintenance

n Cash at bank and in hand at year end of £16.9m

n Available liquidity of £46.9m including undrawn amounts under the revolving credit and acquisition/capital facilities

n Leverage on net bank debt at year end equates to 6.1 x EBITDA

n We acquired £24.5m of senior debt at a cost of £9.7m, thereby reducing our net borrowings by £14.8m

n Our interest cost reduced from £28.6m in FY08 to £23.3m in FY09, reflecting the benefits of reductions in LIBOR and strong cash management

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Tragus is committed to promoting talent from within through structured company

development programmes for all levels of management.

Corporate Social Responsibility

Tragus acknowledges

that it has a role to play

in contributing to and

protecting the communities

and environment in which

it operates. We have a

number of initiatives in

place in this area and are

continually looking at new

activities we can introduce.

Our activities cover four

main areas: people, healthy

eating, environment and

community.

PeopleTragus’ people are the most important ingredient in our success and we endeavour to create a working environment where people will develop and prosper.

Tragus currently employs over 7,000 people and has an Equal Opportunities Policy which states that we are fully committed to providing equal opportunities throughout employment, from recruitment and selection to training and promotion of employees.

We will not permit discrimination against any employee, customer or supplier on the grounds of:

• Sex• Sexual orientation• Marital status or parental status• Race• Colour or creed• Ethnic or national origin/ nationality• Religion• Disability• Age

We have clear and fair terms of employment within the company. All staff members are provided with a contract of employment and there are fully documented procedures in place for disciplinary issues and grievances raised by employees.

Tragus invests heavily in training and we have our own in–house training department. The business has established successful E-Learning technology across the business, which allows employees to receive health and safety, food hygiene, Disability Discrimination Act and company induction training. Customer service training focusing on our unique Steps of Service is at the forefront of our training philosophy.

Tragus is committed to promoting talent from within through structured company development programmes for all levels of management. This includes our in-depth Assistant Manager Development Programme and a Senior Restaurant Manager role designed to provide supported development for new multi-site managers.

The increasing size of the company means that regular communication is essential. Tragus has in place a number of channels of communication including regular team and area meetings, weekly and monthly publications and a company intranet. In addition, the management board carries out two business updates a year with all restaurant managers.

Tragus believes the health and safety of its staff and customers is of paramount importance. We have clear standards and procedures in place and to enforce these we employ external auditors as well as performing regular internal audits.

The law on the handling of credit card tips and service charge changed on 1st October 2009. Along with the rest of the industry, Tragus has changed its policies to fully comply with the new legislation. We have also adopted industry best practice in terms of disclosure of our tipping and service charge polices. Full details can be found on our brand website.

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We have published our healthy eating commitments which cover procurement, kitchen practices, menu planning and

consumer information.

Corporate Social Responsibility

Healthy eatingHealthy eating is a personal responsibility but Tragus acknowledges that as a provider of food and drink we have to provide customers with a choice of dishes and the necessary information to make an informed choice.

All our menus are designed to provide our customers with a number of choices, allowing them to select a healthy option if desired.

We welcome feedback on our menus from our customers as well as nutrition experts and keep the menus under constant review accordingly.

In conjunction with the FSA and other key industry operators we have published our healthy eating commitments which cover procurement, kitchen practices, menu planning and consumer information.

We have relaunched the children’s menus at Café Rouge and Bella Italia, working with a nutritionist to develop offerings that have plenty of choice and are nutritionally balanced. Every child’s meal includes a serving of vegetables or salad.

We understand the importance and emerging focus on being able to provide our customers with nutritional information including calorific content.

We have worked with our suppliers to remove all artificial hydrogenated trans-fats from our ingredients and do not use any genetically modified foods on any of our menus.

EnvironmentTragus, in partnership with its suppliers, is working to reduce its impact on the environment. This is a constantly evolving process and we are continually looking at new suppliers and working with our existing ones to find initiatives and solutions which make both commercial and environmental sense.

We have categorised the various initiatives that we have in place into three areas – waste and recycling, energy saving, and food and drink - and are working to implement these as quickly as possible.

Waste and recyclingWe are reducing the waste we send to landfill by recycling more.

We already recycle in many of our restaurants. However, we want to ensure we are recycling as much as we possibly can and are working to implement a recycling scheme in 100% of restaurants.

We are working with our suppliers to reduce the amount of packaging.

We have a recycling scheme in place at our head office.

We recycle waste cooking oil in all restaurants.

Energy savingWe are supportive of the Government’s Climate Change agenda and are preparing for the introduction of the Carbon Reduction Commitment in 2010. We install an energy pack into high volume new restaurant sites which manages energy consumption with links to kitchen and heating/ventilation equipment.

We use half-hour electricity meters in many of our restaurants to closely monitor consumption versus benchmark sites.

Working with our energy consultants we are undertaking a multi-disciplinary project to review our energy consumption across all of our restaurants. This will lead to a review of our restaurant management practices and restaurant design resulting in further reductions in our energy consumption rates and related costs.

Food and drinkWe actively supply filtered tap water to all our customers at Strada.

We have switched 90% of bottled water supply to Belu which is the UK’s first carbon neutral water. Belu donate all profits to Third World water projects.

CommunityIn 2008/2009 our brands supported Children in Need and Marie Curie raising £40,000 by sponsorship of a menu dish.

In addition we encourage our restaurant managers to get involved with and support good causes in their local communities.

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Day to day operations of Tragus’ business are the responsibility of the Management Board

which is made up of the three executive directors and two members of senior management.

Ownership and Management Structure

OwnershipTragus Group Limited is

incorporated in England and

Wales and is ultimately owned

by investment funds controlled

by the Blackstone Group.

ManagementThe Company is managed in

the UK by its Board of Directors

(‘The Board’), comprising a

Non-executive Chairman, three

Executive Directors and three

representatives of Blackstone.

The Board is the company’s

decision making body.

Biographies of the Board

of Directors and Senior

Management are set out here.

Board of DirectorsGiles Thorley Non-executive ChairmanGiles was appointed Non-executive Chairman in October 2006. He has been the Chief Executive of Punch Taverns since 2003. After qualifying as a Barrister, his early career was at Nomura International plc. He successfully led the IPO of Punch in May 2002 and has seen the business through subsequent acquisitions including Pubmaster in 2003 and Spirit Group in 2006. Giles is also a Non-executive Director of Tui Travel plc and a trustee of the Rona Trust.

Graham Turner Chief Executive OfficerGraham became CEO in January 2005. He was previously the Managing Director of the Unique Pub Company with some 4,000 leased pubs in the UK. Graham was part of the initial management team that grew the business through acquisitions and operational improvements. The Unique Pub Company is now owned by Enterprise Inns, one of the UK’s largest pub landlords. Graham is the Non Executive Chairman of the National Restaurants Group, a part of the British Hospitality Association, and is also the Non Executive Chairman of the Liberation Group Limited, a pub and drinks distribution business based in the Channel Islands.

Mohan Mansigani Chief Financial OfficerMohan has previously been Finance Director of Costa Coffee and TGI Friday’s and was part of a team that grew these businesses substantially and implemented strong systems and management controls. Prior to this he held senior roles in Pizza Hut (UK) Ltd and Grand Met Foods. Mohan is a Fellow of the Institute of Chartered Accountants of England and Wales who qualified with Deloitte Touche London. Mohan joined Tragus as part of the buy-in from Whitbread in 2002.

James Parsons Chief Operating OfficerJames began his career as a graduate trainee with Bass Taverns - now trading as Mitchells & Butlers plc - and followed this with five years as an area sales manager for the business. In 1988 he joined BrightReasons Restaurants Ltd as an area manager, firstly for Pizzaland and later for Bella Italia. In 1998 he joined Pizza Express plc as regional director for London and in 2000 took up the position of managing director. James left Pizza Express in 2002 and joined Tragus shortly afterwards.

Joseph Baratta Non Executive DirectorJoseph is a Senior Managing Director in the Corporate Private Equity Group of Blackstone and is based in London. Since joining Blackstone in 1998, Joseph has been involved in the execution of Blackstone’s investments in LiveWire, Republic Technologies International, Universal Orlando, Houghton Mifflin, Merlin Entertainments Group / Legoland, Nycomed Pharmaceuticals, Spirit Group, Southern Cross, NHP, and Center Parcs. Before joining Blackstone, Joseph was with Tinicum Incorporated, and McCown De Leeuw & Company. He also worked at Morgan Stanley in its Mergers & Acquisitions Department. Joseph graduated magna cum laude from Georgetown University. Joseph serves as a Director of Merlin Entertainments Group, Southern Cross Group and Center Parcs plc.

Alan Roux Non Executive DirectorAlan is an Executive Director in Blackstone’s Corporate Private Equity group and is based in London. Alan is responsible for monitoring and advising on the operational performance and strategy of Blackstone’s portfolio companies in Europe. Prior to joining Blackstone in 2007, Alan was the Director of Operations Development at Tesco Stores, where he led the operational improvement programme for the UK’s largest retailer. Before Tesco, he was a Manager for the Boston Consulting Group in New York and London, advising clients in a variety of industry sectors. He started his career with Procter & Gamble in Germany. Alan serves on the board of United Biscuits, Cineworld plc and Klöckner Pentaplast.

Raphael de Botton Non Executive DirectorRaphael is an Associate in the Corporate Private Equity Group of Blackstone, based in London. Before joining Blackstone in 2006, Raphael was with Lazard in the Mergers and Acquisition division in New York. Raphael graduated from ESSEC Business School with a Master’s degree in finance, and from the French National Institute of Telecommunications with a Masters of Science.

Ownership

Funds controlled by Blackstone Group

81.27%

Management 18.73%

Senior ManagementLisa Griffiths Marketing & Buying DirectorLisa has 14 years of experience in marketing and procurement, gained predominantly in the service industry, beginning with completion of the graduate scheme at Thomson Holidays, now TUI. This was followed by a further two years with the tour operator in brand management and new product development before a move to Gossard where she worked on the Shock Absorber brand focusing on product development, PR and advertising. A desire to work in the restaurant industry led Lisa to join the business in 2001 and she is now Marketing and Buying Director responsible for all brands.

Phil Derbyshire Property DirectorPhil spent three years with Wolverhampton and Dudley Breweries prior to joining Whitbread in 1995 as a leasing manager within Whitbread Pub Partnership. A short spell as an acquisition manager with Scottish and Newcastle followed before he rejoined Whitbread in 2000. He successfully accelerated the TGI Fridays acquisition programme and managed the corporate disposal of 44 restaurants to Noble House Limited before moving to Pelican – and subsequently Tragus - as Property Director. Phil is a member of the Royal Institute of Chartered Surveyors.

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The Board of Directors and the Management Board regularly identify, monitor and ensure appropriate processes are put in place to mitigate potential risks

and uncertainties.

Principal Risks and Uncertainties

There are a number of potential

risks and uncertainties which

could have a material impact

on Tragus’ performance. The

Board of Directors and the

Management Board regularly

identify, monitor and ensure

appropriate processes are put in

place to mitigate potential risks

and uncertainties. These risks

include but are not limited to:-

Operational Risk FactorsSupply ChainTragus has a large number of suppliers and prides itself on the quality of its product. The Group could be adversely affected by a fall in the standard of goods supplied by third parties. In order to mitigate this, the Group’s key food suppliers must carry the British Retail Consortium (BRC) approval. Furthermore, the Group’s key suppliers are subject to an annual audit by an independent inspection company which assesses all aspects of the supplier’s production process. Any suppliers who do not achieve the minimum necessary standards are de-listed. The Group regularly re-tenders its food contracts to ensure the quality of product supplied.

EmployeesThe Group’s performance largely depends on its managers and staff, both at restaurant and head office level. The resignation of key individuals and the inability to recruit people with the right experience and skills could adversely impact the Group’s results. To mitigate these issues, the group has invested in training programmes for its staff to maintain high service levels. It has a number of bonus schemes linked to the Group’s results and individual performance designed to reward and retain key individuals.

Input price increasesThe Group’s margins can be adversely reflected by an increase in price of key raw materials including wages overheads and utilities.

Brand riskBrand risk could arise through a one off incident, such as a food scare, or a slow decline in a brand’s appeal to its customer base. The Group manages the risk of a one off incident through day to day operational management. In addition, a rigorous supplier selection policy is applied. There is training for all staff on food safety including use of an e-learning programme. The risk of a slow decline in a brands appeal is managed through continuous menu innovation, marketing campaigns and brand development.

Expansion riskOver aggressive expansion could result in the Group acquiring unprofitable sites. To mitigate this risk the Group has a rigorous decision making process which includes strong financial and operational reviews. In addition, the Group has a dedicated property team with experience in identifying and securing new sites.

Leverage riskUnder its facilities agreement Tragus is subject to agreed financial covenants. Breach of these covenants would require re-negotiation and the requirement to raise additional funds from shareholders. This risk is mitigated by regular and thorough financial forecasting followed by close monitoring of these covenants. Appropriate action is taken to minimise risk.

FraudTragus operates multiple sites across the UK. Risk of fraud exists in misappropriation of assets, including cash banking, theft of stock and theft of cash takings. The Group mitigates this risk through management structure, regular financial review and extensive use of business systems such as EPOS and stock management. Regular external financial audits are also carried out on all restaurants.

Market Risk FactorsCompetitionTragus operates in a highly competitive market particularly around service offering, price and product quality. In order to mitigate this risk, our marketing teams monitor market offerings and pricing on an ongoing basis. Through a third party, the Group, undertakes regular ‘mystery diner’ visits to all our restaurants to ensure menu and customer service are maintained to a high standard. In addition, the existing estate is subject to a rolling refurbishment programme.

General economic conditionsThe disposable income of customers and their leisure activity preferences are and will be affected by changes in the general economic environment. The Group regularly reviews its product offering and engages with its customers to ensure it provides a value for money offering and meets its customers’ needs.

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The three key financial risks are:-

The Board of Directors regularly reviews the financial requirements of the Group

and the risks associated therewith.

Financial Risk

The Board of Directors regularly

reviews the financial requirements

of the Group and the risks

associated therewith. Tragus does

not use complicated financial

instruments and where financial

instruments are used they are

used for reducing interest rate risk.

The Group does not use derivative

financial instruments for trading

purposes. Group operations are

primarily financed from retained

earnings and bank loans. In

addition to the primary financial

instruments, the Group has other

financial instruments such as

debtors, prepayments, trade

creditors and accruals that directly

arise from the Group’s operations.

The three key financial risks are:-Interest rate riskTragus’ interest rate risk arises from long term borrowings. Bank borrowings are denominated in Sterling and are borrowed at floating interest rates. The group utilises interest rate swaps and caps to fix an element of its cost of borrowing.

Liquidity riskCash forecasts identifying the Group’s liquidity requirements are produced frequently and are regularly reviewed to ensure that sufficient financial headroom in our bank covenants exists for at least a 12-month period.

Foreign currency riskWhilst no borrowings are denominated in foreign currencies, a number of key product and ingredient suppliers are exposed to the Euro. Accordingly, wherever possible, the Group undertakes supply contracts denominated in Sterling. Tragus has reviewed its exposure to foreign currency risk and has concluded not to hedge any foreign currency risk, but continues to review its position on an on-going basis.

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Tragus believes that effective corporate governance is a fundamental aspect

of a well run company.

Corporate Governance Report

Tragus believes that effective

corporate governance is a

fundamental aspect of a well

run company and is committed

to maintaining high standards

of corporate governance. Whilst

none of the shares of any Group

company are listed on a stock

exchange, Tragus seeks, so far

as appropriate, to comply with

the combined code of Corporate

Governance (the “Combined

Code”). Through the processes that

are in place the directors believe

that Tragus complies with the

spirit of the Combined Code in a

manner that is appropriate to its

ownership structure.

Board Constitution and ProceduresThe Board comprises the non-executive Chairman, three executive directors and three non-executive directors representing Blackstone.

The Board’s role is to provide leadership to, and to set the strategic direction of the Group. The Board monitors operational performance and is also responsible for establishing Group policies and internal controls to manage risk.

The Chairman is responsible for the leadership of the Board and the Chief Executive Officer, assisted by the other executive directors, is responsible for the strategic direction and operational management of the Group.

The full Board is scheduled to meet six times a year, usually bi-monthly. The Board has a schedule of matters which are reserved for its decision. Such matters include, but are not limited to, the approval of annual budgets, strategic plans, acquisitions and disposals, major capital expenditure, senior management appointments, material contracts and any changes to the Group’s financing arrangements and financial policies. Items delegated to the Executive Directors include the approval of capital or expenditure below the limits required for Board sign off, disposal of low value assets and approval of minor contracts or less senior appointments.

Where urgent decisions are required on matters specifically reserved for the Board in between meetings, there is a process in place to facilitate discussion and decision making.

Board CommitteesThe Board has two principal committees; a Remuneration Committee and an Audit Committee. Both have clearly defined duties with written terms of reference that are approved by the Board.

Audit CommitteeThe Audit Committee is chaired by the Chairman and its members include the Chief Executive, Chief Financial Officer and two non-executive Directors.

The Audit Committee meets regularly and is responsible for all matters relating to the regulatory and accounting requirements that may affect the Group, together with the financial reporting and internal control procedures adopted by the Group.

The Audit Committee’s responsibilities include:-

• Reviewing the financial statements of the Group and the external auditors report thereon, prior to approval by the Board, and reviewing significant financial reporting judgments.

• Monitoring and reviewing the external auditor’s independence, objectivity and effectiveness, taking into consideration relevant professional and regulatory requirements.

• Establishing procedures to ensure that the Group monitors and evaluates risks appropriately.

• Reviewing the Group’s internal financial control systems.

Tragus’ external auditors have confirmed for the year under review that they consider themselves to be independent in their professional judgment.

If the Committee’s activities reveal any issues of concern or scope for improvement, it will make recommendations to the Board on actions needed to address the issue raised or make the necessary improvement.

Remuneration CommitteeThe Remuneration Committee is chaired by the Chairman and its other members comprise the Chief Executive, the Chief Financial Officer and two Blackstone directors. The Committee meets at least once a year and will also meet at such other times as the Board or Committee Chairman may decide.

The Remuneration Committee is responsible for agreeing the framework for the remuneration and other terms of employment of the executive directors and senior managers; determining the total individual remuneration packages of each person and determining the participation of directors and employees in the Tragus Management Equity Scheme.

Individual directors do not participate in any discussions or vote in relation to their own remuneration.

Internal ControlsThe Board has overall responsibility for the systems of internal control, which are designed to manage the risk of failure to achieve the objectives of the business, where such risk cannot be eliminated. The Board has considered the systems of internal control for the accounting year under review and considers these to be appropriate and adequate for the purposes of the Group.

Tragus Group Ltd163 Eversholt Street, London, NW1 1BU

Tel: +44 (0)20 7121 3200 www.tragusgroup.com