Whitbread PLC — Annual Report 2013

Feb 28, 2013

Registered number: 1270695

COSTA LIMITED

DIRECTORS' REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 28 FEBRUARY 2013

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COSTA LIMITED

COMPANY INFORMATION

DIRECTORS

C Bentley
MJ Price
H Hardy
KJ Slater
AJ Marshall
CCB Rogers (appointed 6 July 2012)
J Cotta (appointed 18 March 2013)

COMPANY SECRETARY

DC Lowry,RW Fairhurst

REGISTERED NUMBER

1270695

REGISTERED OFFICE

Whitbread Court
Houghton Hall Business Park
Porz Avenue
Dunstable
Bedfordshire
LU5 5XE

INDEPENDENT AUDITOR

Ernst & Young LLP
1 Colmore Square
Birmingham
West Midlands
B4 6HQ

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COSTA LIMITED

DIRECTORS' REPORT

FOR THE YEAR ENDED 28 FEBRUARY 2013

The Directors present their report and the financial statements for the year ended 28 February 2013.

PRINCIPAL ACTIVITIES AND BUSINESS REVIEW

The principal activity of the Company during the year continued to be the production and sale of coffee. Coffee is sold through a chain of coffee shops, both owned and franchised, and to wholesale customers.

The directors are satisfied with the Company's performance for the year and are confident that the Company's business strategy will result in sustainable growth in the coming year.

The Company's key financial, and other, performance indicators during the year were as follows:

	2013	2012	Change %
Turnover - £m	553.0	458.6	20.6%
Operating profit (pre-exceptional) - £m	93.0	65.6	41.8%
Like for like sales growth (UK only)	6.8%	5.5%
New stores opened (UK only)	199	195

RESULTS AND DIVIDENDS

The profit for the year, after taxation, amounted to £68,750,000 (2012 - £45,294,000).

The directors do not recommend the payment of a dividend for the year (2012: £nil).

DIRECTORS

The Directors who served during the year were:

• J Derkach (resigned 19 July 2012)
• C Bentley
• AJ Johnson (resigned 25 January 2013)
• MJ Price
• H Hardy
• KJ Slater
• AJ Marshall
• CCB Rogers (appointed 6 July 2012)

PRINCIPAL RISKS AND UNCERTAINTIES

Marketplace risks

Consumer trends

It is possible that changes in consumer trends may reduce the appeal of Costa if those trends are not properly anticipated and action is not taken to address potential issues at an early stage. Costa mitigates this risk in a number of ways. First, Costa carries out market research and analyses consumer trends and uses this research to anticipate future consumer trends and to position itself to benefit from those trends. In addition, the Company places great importance on listening to the views of its customers. Costa obtains feedback from customers every month and uses this feedback to ensure that it continues to offer the type and quality of services that its customers expect. Costa believes that by listening to its customers it is significantly reducing the risks associated with changing consumer trends.

Page 9

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COSTA LIMITED

DIRECTORS' REPORT

FOR THE YEAR ENDED 28 FEBRUARY 2013

Consumer spending

The general health of the UK economy and its influence on consumer spending is important to the Company's success. Despite the difficulties being experienced in the general UK economy, the Company recorded like for like sales growth ahead of budget.

Improvement in competitor financial health and/or competitor activity can result in a loss of market share

Actions to outperform the competition are developed on a strategic and tactical basis. Significant customer research is carried out and the customer insight received is used to develop action plans. Consumer trends, both in the UK and overseas, are analysed and competitor activity is monitored. Monthly reports are produced by each business for the directors.

There is a security breach resulting in the loss, or improper access to, customer or confidential data

Mitigation of this risk comes from the expertise of the IS team in protecting the systems and network. IS security training has been delivered to employees and legal advisors are used to monitor new legislation and advise the IS team. Systems are continually monitored for irregular activity and disaster recovery plans are reviewed by the directors.

Operational risks

People

The successful delivery of service to Costa's customers depends on recruiting and retaining high quality people. Failure to employ the right people would put the Company's reputation at risk. Costa is proud of its people and believes that by taking care of them, they will take care of customers and financial performance will follow. Costa listens to the views of its employees, and has a range of employment policies designed to make it a rewarding place to work. The Company carries out a rigorous selection process and benchmarks the pay and benefits that it offers its employees in order to recruit and retain the best people for the role.

Health and safety

Costa takes health and safety very seriously and in order to guard against incidents resulting from a failure, the Safety and Security team ensures a consistency of approach. All business units have comprehensive health and safety policies and risk assessments covering significant areas of risk. The Company also has a robust health and safety audit programme in place.

External financial risks

Coffee costs

The Company mitigates the risk of fluctuations in coffee prices by purchasing coffee using forward contracts. The Company does not enter into speculative positions when entering forward contracts.

Utility costs

Recent years have seen large rises in utility costs and future cost increases are a risk. Costa has mitigated these cost rises by negotiating centralised utility contracts where possible.

Wage inflation

There is a risk that the minimum wage will rise at a faster rate than the rate of inflation. Costa has mitigated this continuing risk by reviewing its operating procedures and improving productivity through the use of labour scheduling techniques.

Page 10

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COSTA LIMITED

DIRECTORS' REPORT

FOR THE YEAR ENDED 28 FEBRUARY 2013

There is a third-party failing and consequently a breach in the terms and conditions of a significant contract

Credit control checks are carried out on parties to significant contracts, along with the continued auditing and monitoring of those contracts. A regular review of debtors is undertaken.

EMPLOYEE INVOLVEMENT

The Company looks for effective ways to reward its employees, including a wide range of benefits. In addition, the parent company seeks to give group employees a direct stake in the business by means of granting options under the Sharesave Scheme, details of the scheme being disclosed in the accounts of Whitbread PLC. The Company is committed to increasing employee involvement by means of meetings with management and opinion surveys.

DISABLED EMPLOYEES

The Company is committed to the principle that the sole criterion for selection or promotion is the suitability of an applicant for a job. Training and development is available to all levels and categories of staff. Disabled people are offered the same opportunities as all others in respect of recruitment, training, promotion and career development. Employees who become disabled will, wherever possible, be retained and, if necessary, retrained.

QUALIFYING THIRD PARTY INDEMNITY PROVISIONS

A qualifying indemnity provision (as defined in Section 236 (1) of the Companies Act 2006) is in force for the benefit of the directors.

PROVISION OF INFORMATION TO AUDITOR

Each of the persons who are Directors at the time when this Directors' Report is approved has confirmed that:

• so far as that Director is aware, there is no relevant audit information of which the Company's auditor is unaware, and
• that Director has taken all the steps that ought to have been taken as a Director in order to be aware of any information needed by the Company's auditor in connection with preparing its report and to establish that the Company's auditor is aware of that information.

AUDITOR

The auditor, Ernst & Young LLP, will be proposed for reappointment in accordance with section 485 of the Companies Act 2006.

This report was approved by the board on 14 NOVEMBER 2013 and signed on its behalf.

Page 11

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COSTA LIMITED

DIRECTORS' RESPONSIBILITIES STATEMENT FOR THE YEAR ENDED 28 FEBRUARY 2013

The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;
• make judgments and accounting estimates that are reasonable and prudent;
• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Page 12

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COSTA LIMITED

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF COSTA LIMITED

We have audited the financial statements of Costa Limited for the year ended 28 February 2013, which comprise the Profit and Loss Account, the Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an Auditor's Report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR

As explained more fully in the Directors' Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's Ethical Standards for Auditors.

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Company's circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Directors' Report and Financial Statements to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

OPINION ON FINANCIAL STATEMENTS

In our opinion the financial statements:

• give a true and fair view of the state of the Company's affairs as at 28 February 2013 and of its profit for the year then ended;
• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and
• have been prepared in accordance with the requirements of the Companies Act 2006.

OPINION ON OTHER MATTER PRESCRIBED BY THE COMPANIES ACT 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

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COSTA LIMITED

INDEPENDENT AUDITOR'S REPORT TO THE SHAREHOLDERS OF COSTA LIMITED

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Ernst & Young LLP

Simon O'Neill (Senior Statutory Auditor)
for and on behalf of
Ernst & Young LLP
Statutory Auditor
Birmingham
Date: 28/11/2013

Page 14

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COSTA LIMITED

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 28 FEBRUARY 2013

| | Note | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- | --- |
| TURNOVER | 1,2 | 552,959 | 458,596 |
| Cost of sales | | (156,465) | (131,121) |
| GROSS PROFIT | | 396,494 | 327,475 |
| Distribution costs | | (257,824) | (224,406) |
| Administrative expenses | | (45,520) | (37,283) |
| Other operating charges | | (200) | (231) |
| OPERATING PROFIT | 3 | 92,950 | 65,555 |
| EXCEPTIONAL ITEMS | | | |
| Net loss on sale of investments and tangible fixed assets | 8 | (1,637) | (251) |
| Other exceptional items | 8 | (577) | (3,363) |
| PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST | | 90,736 | 61,941 |
| Interest receivable | 7 | 3,193 | 683 |
| Interest payable and similar charges | | (2) | - |
| PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION | | 93,927 | 62,624 |
| Tax on profit on ordinary activities | 9 | (25,177) | (17,330) |
| PROFIT FOR THE FINANCIAL PERIOD | | 68,750 | 45,294 |

All amounts relate to continuing operations.

There were no recognised gains and losses for 2013 or 2012 other than those included in the Profit and Loss Account.

The notes on pages 17 to 30 form part of these financial statements.

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COSTA LIMITED
REGISTERED NUMBER: 1270695

BALANCE SHEET

AS AT 28 FEBRUARY 2013

	Note	28 February			1 March
		2013		2012
		£000	£000	£000	£000
FIXED ASSETS
Intangible assets	12		4,069		3,838
Tangible assets	13		122,351		108,533
Investments	14		66,744		68,241
			193,164		180,612
CURRENT ASSETS
Stocks	15	7,571		7,775
Debtors	16	122,096		53,813
Cash at bank and in hand		6,426		3,887
		136,093		65,475
CREDITORS: amounts falling due within one year	17	(81,143)		(67,995)
NET CURRENT ASSETS/(LIABILITIES)			54,950		(2,520)
TOTAL ASSETS LESS CURRENT LIABILITIES			248,114		178,092
PROVISIONS FOR LIABILITIES
Deferred tax	10	-		(1,020)
Other provisions	11	(94)		(182)
			(94)		(1,202)
NET ASSETS			248,020		176,890
CAPITAL AND RESERVES
Called up share capital	19		33,000		33,000
Profit and loss account	20		215,020		143,890
SHAREHOLDERS' FUNDS	21		248,020		176,890

The financial statements were approved and authorised for issue by the board and were signed on its behalf on 14 NOVEMBER 2013

Director
m PRICE

The notes on pages 17 to 30 form part of these financial statements.

Page 16

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

1. ACCOUNTING POLICIES

1.1 Authorisation

The financial statements of Costa Limited for the year ended 28 February 2013 were authorised for issue by the Board of Directors on 14 November 2013.

1.2 Basis of preparation of financial statements

The financial statements have been prepared under the historical cost convention and in accordance with applicable accounting standards.

The Company is itself a subsidiary company and is exempt from the requirement to prepare group accounts by virtue of section 400 of the Companies Act 2006. These financial statements therefore present information about the Company as an individual undertaking and not about its group.

1.3 Going concern

The financial position of the Company is set out in these financial statements. The Company has considerable financial resources and, as a consequence, the directors believe that the Company is well placed to manage its business risks.

The directors have a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements.

1.4 Cash flow

The Company, being a subsidiary undertaking where 90% or more of the voting rights are controlled within the group whose consolidated financial statements are publicly available, is exempt from the requirement to draw up a cash flow statement in accordance with FRS 1.

1.5 Turnover

Turnover comprises revenue recognised by the Company in respect of goods and services supplied during the year, exclusive of Value Added Tax and trade discounts.

1.6 Intangible fixed assets and amortisation

Intangible assets include ERP costs and are amortised on a straight line basis over their estimated useful life of 5 years. They are held at cost less provision for impairment.

Intangible assets also include trademarks which are deemed to have an infinite life and hence not amortised.

1.7 Tangible fixed assets and depreciation

Tangible fixed assets are stated at cost less depreciation. Depreciation is provided at rates calculated to write off the cost of fixed assets, less their estimated residual value, over their expected useful lives on the following bases:

Land and Buildings	- over the shorter of 50 years or the remaining useful life
Fixtures & fittings	- mainly over 6 to 10 years

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

1. ACCOUNTING POLICIES (continued)

1.8 Investments

Investments held as fixed assets are shown at cost less provision for impairment.

1.9 Operating leases

Rentals under operating leases are charged to the Profit and Loss Account on a straight line basis over the lease term.

Benefits received and receivable as an incentive to sign an operating lease are recognised on a straight line basis over the period until the date the rent is expected to be adjusted to the prevailing market rate.

1.10 Stocks

Stocks are valued at the lower of cost and net realisable value after making due allowance for obsolete and slow-moving stocks. Cost includes all direct costs and an appropriate proportion of fixed and variable overheads.

1.11 Deferred taxation

Full provision is made for deferred tax assets and liabilities arising from all timing differences between the recognition of gains and losses in the financial statements and recognition in the tax computation.

A net deferred tax asset is recognised only if it can be regarded as 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 assets and liabilities are calculated at the tax rates expected to be effective at the time the timing differences are expected to reverse, using rates that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets and liabilities are not discounted.

1.12 Foreign currencies

Monetary assets and liabilities denominated in foreign currencies are translated into sterling at rates of exchange ruling at the balance sheet date.

Transactions in foreign currencies are translated into sterling at the rate ruling on the date of the transaction.

Exchange gains and losses are recognised in the Profit and Loss Account.

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

1. ACCOUNTING POLICIES (continued)

1.13 Pensions

Employees of the Company are entitled to participate in pension schemes operated by Whitbread Group PLC as described in note 31 of the Whitbread PLC annual report and financial statements for the year ended 28 February 2013.

The Group operates a defined contribution pension scheme, with both the company and employee contributions being held in an externally invested trustee-administered fund. Contributions to the scheme are charged in the profit and loss account as they become payable.

The defined benefit (final salary) section of the principal Group Pension Scheme, the Whitbread Group Pension Fund, was closed to new members on 31 December 2001 and to future accrual on 31 December 2009. The scheme is funded, and contributions by both employees and Group companies are held in externally invested trustee administered funds.

1.14 Share-based payments

FRS 20 requires the fair value of options and share awards which ultimately vest to be charged to the profit and loss account over the vesting or performance period.

For equity-settled transactions the fair value is determined at the date of the grant using an appropriate pricing model. For cash-settled transactions fair value is established initially at the grant date and, where material, at each balance sheet date thereafter until the awards are settled. If an award fails to vest as the result of certain types of performance conditions not being satisfied, the charge to the income statement will be adjusted to reflect this.

2. TURNOVER

Turnover is the value of goods and services sold within the UK and the European Union, as part of the Company's continuing ordinary activities after deducting sales based taxes.

All turnover arose within the United Kingdom.

3. OPERATING PROFIT

The operating profit is stated after charging/(crediting):

| | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- |
| Amortisation - intangible fixed assets | 604 | 561 |
| Depreciation of tangible fixed assets: | | |
| - owned by the company | 27,327 | 21,739 |
| Operating lease rentals: | | |
| - plant and machinery | 1,445 | 1,061 |
| - property | 63,903 | 59,810 |
| Difference on foreign exchange | 200 | 231 |
| Staff costs (note 5) | 125,760 | 105,081 |

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

4. AUDITORS' REMUNERATION

Audit fees for the year were paid by a parent company, Whitbread Group PLC. Information about the total audit fees paid by the Group can be found in the Whitbread PLC annual report and financial statements for the year ended 28 February 2013.

5. STAFF COSTS

Staff costs, including Directors' remuneration, were as follows:

| | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- |
| Wages and salaries | 116,750 | 98,168 |
| Social security costs | 8,167 | 6,206 |
| Other pension costs | 843 | 707 |
| | 125,760 | 105,081 |

The average monthly number of employees, including the Directors, during the year was as follows:

| | Year ended
28 February
2013 | Year ended
1 March
2012 |
| --- | --- | --- |
| Number of employees | 7,902 | 6,865 |

Included within the average number of employees and the staff costs detailed above, are employees under an employment contract with Whitbread Group PLC or Costa Limited and who provide services to Costa Limited during the year.

6. DIRECTORS' REMUNERATION

| | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- |
| Emoluments | 2,584 | 2,297 |

The highest paid Director received remuneration of £637,000 (2012 - £673,000).

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

7. INTEREST RECEIVABLE

| | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- |
| Interest receivable from group companies | 3,187 | 644 |
| Other interest receivable | 6 | 39 |
| | 3,193 | 683 |

8. EXCEPTIONAL ITEMS

| | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- |
| Loss on disposal of tangible fixed assets | 98 | 251 |
| Impairment of loans to joint ventures | - | 3,321 |
| Impairment of tangible fixed assets | 577 | 42 |
| Loss on disposal of business | 1,539 | - |
| | 2,214 | 3,614 |

9. TAXATION

| | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- |
| Analysis of tax charge in the year | | |
| Current tax (see note below) | | |
| UK corporation tax charge on profit for the year | 25,007 | 18,022 |
| Adjustments in respect of prior periods | 1,377 | (103) |
| Total current tax | 26,384 | 17,919 |
| Deferred tax | | |
| Origination and reversal of timing differences | (1,277) | (492) |
| Adjustments in respect of prior periods | 98 | - |
| Change in UK tax rate | (28) | (97) |
| Total deferred tax (see note 10) | (1,207) | (589) |
| Tax on profit on ordinary activities | 25,177 | 17,330 |

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

9. TAXATION (continued)

Factors affecting tax charge for the year

The tax assessed for the year is higher than (2012 - higher than) the standard rate of corporation tax in the UK of 24.17% (2012 - 26.17%). The differences are explained below:

| | Year ended
28 February
2013
£000 | Year ended
1 March
2012
£000 |
| --- | --- | --- |
| Profit on ordinary activities before tax | 93,927 | 62,624 |
| Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 24.17% (2012 - 26.17%) | 22,702 | 16,389 |
| Effects of: | | |
| Expenses not deductible for tax purposes, other than goodwill amortisation and impairment | (539) | 78 |
| Depreciation for year in excess of capital allowances | 1,277 | 452 |
| Adjustments to tax charge in respect of prior periods | 1,377 | (103) |
| Transfer pricing adjustments | 459 | - |
| Depreciation not in deferred tax | 1,108 | 1,103 |
| Current tax charge for the year (see note above) | 26,384 | 17,919 |

Factors that may affect future tax charges

The Finance Act 2012 reduced the main rate of UK corporation tax to 24% from 1 April 2012 and to 23% from 1 April 2013.

In his budget of 20 March 2013, the Chancellor of the Exchequer confirmed the planned additional reduction in the rate of corporation tax to 21% with effect from 1 April 2014 and announced a further reduction to 20% from 1 April 2015. These changes had not been substantively enacted at the balance sheet date and consequently, in accordance with UK accounting standards, are not reflected in these financial statements.

These reductions in the rate of corporation tax were substantively enacted on 2 July 2013 by virtue of the Finance Act 2013. If the changes had been substantively enacted before the Company's balance sheet date, the effect would have been to reduce the deferred tax asset by £24,300.

The rate change will impact the amount of the future cash tax payment to be made by the Company.

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

10. DEFERRED TAXATION ASSET/(LIABILITY)

| | 28 February
2013
£000 | 1 March
2012
£000 |
| --- | --- | --- |
| At beginning of year | (1,020) | (1,608) |
| Released during year | 1,179 | 491 |
| Change in UK tax rate to 23% (2012: 25%) | 28 | 97 |
| At end of year | 187 | (1,020) |

The deferred taxation balance is made up as follows:

| | 28 February
2013
£000 | 1 March
2012
£000 |
| --- | --- | --- |
| Accelerated capital allowances | (187) | 1,020 |

11. PROVISIONS

| | Onerous Contracts
£000 |
| --- | --- |
| At 2 March 2012 | 182 |
| Amounts used | (88) |
| At 28 February 2013 | 94 |

Onerous Contracts

The onerous contract provision relates to a lease expiring in November 2013.

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

12. INTANGIBLE FIXED ASSETS

| | Trademarks
£000 | Other
£000 | Total
£000 |
| --- | --- | --- | --- |
| Cost | | | |
| At 2 March 2012 | 2,442 | 3,344 | 5,786 |
| Additions | - | 835 | 835 |
| At 28 February 2013 | 2,442 | 4,179 | 6,621 |
| Amortisation | | | |
| At 2 March 2012 | 582 | 1,366 | 1,948 |
| Charge for the year | - | 604 | 604 |
| At 28 February 2013 | 582 | 1,970 | 2,552 |
| Net book value | | | |
| At 28 February 2013 | 1,860 | 2,209 | 4,069 |
| At 1 March 2012 | 1,860 | 1,978 | 3,838 |

Other Intangibles represent IT and ERP costs and are amortised on a straight line basis over their estimated useful life of 3-5 years.

13. TANGIBLE FIXED ASSETS

| | Land & Buildings
£000 | Fixtures & fittings
£000 | Total
£000 |
| --- | --- | --- | --- |
| Cost | | | |
| At 2 March 2012 | 57,052 | 125,471 | 182,523 |
| Additions | 10,446 | 31,658 | 42,104 |
| Disposals | (538) | (1,096) | (1,634) |
| Assets written off | (1,924) | (12,840) | (14,764) |
| At 28 February 2013 | 65,036 | 143,193 | 208,229 |
| Depreciation | | | |
| At 2 March 2012 | 22,256 | 51,734 | 73,990 |
| Charge for the year | 6,197 | 21,130 | 27,327 |
| On disposals | (406) | (846) | (1,252) |
| Assets written off | (1,924) | (12,840) | (14,764) |
| Impairment charge | - | 577 | 577 |
| At 28 February 2013 | 26,123 | 59,755 | 85,878 |
| Net book value | | | |
| At 28 February 2013 | 38,913 | 83,438 | 122,351 |
| At 1 March 2012 | 34,796 | 73,737 | 108,533 |

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

14. FIXED ASSET INVESTMENTS

	Investments in subsidiary companies £000	Loans to subsidiaries £000	Investment in joint ventures £000	Total £000
Cost or valuation
At 2 March 2012	65,002	1,700	1,539	68,241
Additions	42	-	-	42
Disposals	-	-	(1,539)	(1,539)
At 28 February 2013	65,044	1,700	-	66,744
Net book value
At 28 February 2013	65,044	1,700	-	66,744
At 1 March 2012	65,002	1,700	1,539	68,241

Subsidiary undertakings

The following were subsidiary undertakings of the Company:

Name	Holding
Costa International Limited	100%
Costa Card ELMI Limited	100%
Costa Coffee India Private Limited	100%
Coffeeheaven International Limited	100%
Coffee Nation Holdings Limited	100%
Costa Catering Management (Shanghai) Co Ltd	100%
Name	Business
---	---
Costa International Limited	Franchise Business
Costa Card ELMI Limited	E-money issuer
Costa Coffee India Private Limited	Franchise Business
Coffeeheaven International Limited	Operator of coffee shops
Coffee Nation Holdings Limited	Holding company
Costa Catering Management (Shanghai) Co Ltd	Catering Management

Participating interests

During the year the joint venture in Rosworth Investments Limited was sold to the joint venture partner.

The additions to investment in subsidiaries relates to Costa Catering Management (Shanghai) Co Ltd.

Page 25

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

1. STOCKS

| | 28 February
2013
£000 | 1 March
2012
£000 |
| --- | --- | --- |
| Raw materials | 3,297 | 3,789 |
| Finished goods and goods for resale | 4,274 | 3,986 |
| | 7,571 | 7,775 |

1. DEBTORS

| | 28 February
2013
£000 | 1 March
2012
£000 |
| --- | --- | --- |
| Due after more than one year | | |
| Trade debtors | 2,419 | 2,056 |
| Due within one year | | |
| Trade debtors | 16,512 | 13,504 |
| Amounts owed by group undertakings | 91,234 | 30,218 |
| Other debtors | 4,175 | 2,979 |
| Prepayments and accrued income | 7,569 | 5,056 |
| Deferred tax asset (see note 10) | 187 | - |
| | 122,096 | 53,813 |

1. CREDITORS: Amounts falling due within one year

| | 28 February
2013
£000 | 1 March
2012
£000 |
| --- | --- | --- |
| Trade creditors | 10,122 | 9,447 |
| Corporation tax | 26,385 | 17,920 |
| Other creditors | 18,306 | 15,530 |
| Accruals and deferred income | 26,330 | 25,098 |
| | 81,143 | 67,995 |

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

18. SHARE BASED PAYMENTS

Shares referred to in this note are in the ultimate parent company, Whitbread PLC. Disclosures are calculated on an allocation of these shares based on the number of employees employed by the Company.

Long-term incentive plan (LTIP)

The LTIP awards shares to directors and senior executives of the Whitbread Group. Vesting of shares under the scheme will depend on continued employment and meeting total shareholder return (TSR), earnings per share (EPS) and return on capital employed (ROCE) targets over a three-year period.

The awards are settled in equity once exercised.

Movements in the number of share awards are as follows:

	2013 Awards	2012 Awards
Outstanding at the beginning of the year	150,718	106,453
Granted during the year	85,186	79,417
Exercised during the year	(56,927)	(27,322)
Expired during the year	(10,714)	(7,830)
Outstanding at the end of the year	168,263	150,718
Exercisable at the year end	29,905	-

Deferred equity awards

Awards are made under the Whitbread Leadership Group Incentive Scheme.

The awards are not subject to performance conditions and will vest in full on the release date subject to continued employment at that date. If employment ceases prior to the release date, normally three years after the award, by reason of redundancy, retirement, death, injury, ill health or disability, the awards will be released in full. If employment ceases for any other reason the proportion of the awards which vests depends upon the year in which the award was made and the date that employment ceased. If employment ceases in the first year after an award is made none of the award vests, between the first and second anniversary 25% vests and between the second and third anniversary 50% vests.

Movements in the number of share awards are as follows:

	2013 Awards	2012 Awards
Outstanding at the beginning of the year	29,581	32,799
Granted during the year	38,656	71,298
Exercised during the year	(3,447)	(74,094)
Expired during the year	(7,472)	(422)
Outstanding at the end of the year	57,318	29,581
Exercisable at the year end	-	-

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

18. SHARE BASED PAYMENTS (continued)

Employee share scheme - Save As You Earn

The Whitbread employee share save scheme is open to employees with the required minimum period of service and provides for a purchase price equal to the market price on the date of grant, less a 20% discount. The shares can be purchased over the six-month period following the 3rd or 5th anniversary of the commencement date, depending on the length chosen by the employee.

Movements in the number of share options and the related WAEP are as follows:

	2013		2012
	Options	WAEP (£ per share)	Options	WAEP (£ per share)
Outstanding at the beginning of the year	69,186	11.91	77,768	9.74
Granted during the year	23,800	19.14	30,688	13.39
Exercised during the year	(13,212)	9.85	(27,159)	7.53
Expired during the year	(12,653)	15.51	(12,111)	11.55
Outstanding at the end of the year	67,121	16.27	69,186	11.91
Exercisable at year end	947	10.44	3,103	7.46

The weighted average contractual life for the share options outstanding as at 28 February 2013 is between two and three years and they are exercisable at prices between £7.28 and £19.14 (2012: £7.28 and £14.17). The fair value of share options granted is estimated as at the date of grant using a stochastic model, taking into account the terms and conditions upon which the options were granted.

Total profit and loss account charge

	2013	2012
	£000	£000
Long-Term Incentive Plan and uplift awards	1,023	567
Deferred equity	878	873
Employee share scheme	479	449
Total charged to profit and loss account	2,380	1,889

The inputs to the model used for the years ended 28 February 2013 and 01 March 2012 can be found in the consolidated accounts of Whitbread PLC for the year ended 28 February 2013.

At 28 February 2013 there were outstanding options for employees to purchase up to 67,121 Whitbread PLC ordinary shares of 76.80 pence each between 2012 and 2017 at prices ranging from £7.28 to £19.14 per share (2012: 69,186 options at prices between £7.28 and £14.17 per share).

Page 28

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

19. SHARE CAPITAL

| | 28 February
2013
£ | 1 March
2012
£ |
| --- | --- | --- |
| Allotted, called up and fully paid
33,000,100 (2012 - 33,000,100) Ordinary shares of £1 each | 33,000,100 | 33,000,100 |

20. RESERVES

| | Profit and loss account
£000 |
| --- | --- |
| At 2 March 2012 | 143,890 |
| Profit for the year | 68,750 |
| Share based payments | 2,380 |
| At 28 February 2013 | 215,020 |

21. RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

| | 28 February
2013
£000 | 1 March
2012
£000 |
| --- | --- | --- |
| Opening shareholders' funds | 176,890 | 129,707 |
| Profit for the year | 68,750 | 45,294 |
| Share based payments | 2,380 | 1,889 |
| Closing shareholders' funds | 248,020 | 176,890 |

22. PENSION COMMITMENTS

Employees of the Company are entitled to participate in the pension scheme operated by Whitbread Group PLC, the Whitbread Group Pension Fund. The scheme was closed to new members on 31 December 2001 and closed to future accrual on 31 December 2009. Members of this scheme are contracted out of the State Second Pension. Employees of the Company are also entitled to participate in a replacement, contracted-in, defined contribution arrangement which was established by Whitbread Group PLC as a section of the Whitbread Group Pension Fund with effect from 1 April 2002. Both schemes are funded and contributions by both employees and Group companies are held in externally invested trustee-administered funds. The Whitbread Group also has a contracted-out defined contribution pension scheme which was wound up during 2012.

Pension costs (see note 5) are based on costs across all Whitbread group companies within the schemes. The pension charge in the accounts is equivalent to the contributions payable to the schemes.

Details of the actuarial valuation of the Whitbread Group PLC Pension Fund are contained in the accounts of Whitbread PLC for the year ended 28 February 2013.

The Company is unable to identify its share of the underlying assets and liabilities in the Whitbread Group Pension Fund as the scheme also covers employees of other Whitbread companies. Information

Page 29

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COSTA LIMITED

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 28 FEBRUARY 2013

22. PENSION COMMITMENTS (continued)

concerning the assets and liabilities of the scheme calculated in accordance with FRS 17 can be found in the Whitbread PLC Report and Financial Statements for the year ended 28 February 2013.

23. OPERATING LEASE COMMITMENTS

At 28 February 2013 the Company had annual commitments under non-cancellable operating leases as follows:

	Land and buildings		Plant & machinery
	28 February	1 March	28 February	1 March
	2013	2012	2013	2012
	£000	£000	£000	£000
Expiry date:
Within 1 year	2,373	1,279	145	62
Between 2 and 5 years	31,373	27,708	725	921
After more than 5 years	19,444	22,979	-	-

24. CONTINGENT LIABILITIES

The Company has provided guarantees to BNP Paribas Bank Polska S.A. in respect of facilities provided by the bank to CHI Polska amounting to £3.4m.

25. RELATED PARTY TRANSACTIONS

The company is a wholly-owned subsidiary of Whitbread PLC, the ultimate controlling entity, and has taken advantage of the exemption given in Financial Reporting Standard No.8 not to disclose transactions with other group companies.

26. ULTIMATE PARENT UNDERTAKING AND CONTROLLING PARTY

The immediate parent undertaking is Whitbread Group PLC. The ultimate parent undertaking is Whitbread PLC.

The parent undertaking of the smallest group of undertakings for which group accounts are drawn up and of which the Company is a member is Whitbread Group PLC, registered in England and Wales. Copies of their accounts can be obtained from Whitbread Court, Houghton Hall Business Park, Porz Avenue, Dunstable, Bedfordshire LU5 5XE.

The parent undertaking of the largest group of undertakings for which group accounts are drawn up and of which the Company is a member is Whitbread PLC, registered in England and Wales. Copies of their accounts can be obtained from Whitbread Court, Houghton Hall Business Park, Porz Avenue, Dunstable, Bedfordshire LU5 5XE.

Page 30