Annual Report 2015 - Azzurri Group · PDF fileAnnual Report 2015 . Azzurri Group Limited...

Annual Report 2015

Azzurri Group Limited Annual Report and Accounts 2015

1Contents

The Azzurri Group is a market leader in the Italian casual dining sector, operating ASK Italian and Zizzi. For the period under review, the Group employed approximately 5,600 people, serving around 14 million meals a year in its growing estate of around 250 restaurants.

Azzurri’s core brands are highly complementary, appealing to a broad customer base and lending themselves to different occasions. Both ASK Italian and Zizzi offer a memorable dining experience and great value for money, with typical spend per head (including value added tax) averaging £19.

During the financial period under review, the Azzurri Group purchased the ASK Italian and Zizzi businesses from the Gondola Group. Further details are provided on page 48. References throughout this report are made to the full year performance of ASK Italian and Zizzi to allow meaningful comparison.

Following the period under review, the Azzurri Group extended its portfolio of brands through the acquisition of Coco di Mama, one of London’s fastest growing quick service food brands, offering a range of quality hot and cold Italian grab-and-go food, with a speciality in hot pasta and quality coffee. Further details are provided on page 49.

Overview2 2015 highlights3 Azzurri’s brands4 Azzurri’s strategy5 Chairman’s statement

Business review6 Ask Italian10 Zizzi14 Financial review

Governance16 Board of Directors17 Strategic report19 Directors’ report21 Corporate governance report23 Independent auditors’ report

Financial statements24 Consolidated profit and

loss account25 Consolidated statement

of total recognised gains and losses

26 Consolidated balance sheet

27 Company balance sheet28 Consolidated reconciliation

of movements in shareholders’ deficit

29 Consolidated cash flow statement30 Notes to the financial statements50 Corporate directory

www.zizzi.co.uk

www.cocodimama.co.uk

www.askitalian.co.uk

OverviewContents Business review Governance Financial statements

http://www.zizzi.co.uk

http://www.cocodimama.co.uk

http://www.askitalian.co.uk

2


2015 highlights

Financial summary Azzurri Group1

£93.9m

£13.2m

£10.2m

Total sales

EBITDA

Capital Investment

£217.7m+6.5% growth

£31.8m+16.5% growth

£18.6m7 new restaurants, 35 refurbishments & transformations

Azzurri Restaurants2

(52 weeks to 28 June 2015)

Business highlights

AcquisitionOn 21 January 2015, Bridgepoint acquired ASK Italian

& Zizzi via the Azzurri Group

£120mNew senior bank facilities secured

1 The results of Azzurri Group Limited include those of the trading company from the date of acquisition on 21 January 2015

2 To allow a meaningful comparison of the business performance the results of the trading company, Azzurri Restaurants Limited, is shown for the 52 weeks ending 28 June 2015



3Azzurri’s brands

Our passion is to bring simple, quality ingredients together with great service and give you the

opportunity to discover playful individual touches and local artwork in each venue.

Everything we do here is inspired by Italy from the authentic Italian food to the easy going atmosphere,

warm service and fresh design.

Simple, flavoursome and delightful dishes, great service – we’re confident you won’t find such value

anywhere else.

Restaurants 136New this year 3Employees 3,200Average spend per head £19To read more about Zizzi restaurants please go to pages 10-13

Restaurants 112New this year 4Employees 2,300Average spend per head £19To read more about ASK Italian restaurants please go to pages 6-9

Shops 6New this year 1Employees 70Average spend per head £4To read more about the acquisition of Coco di Mama please go to page 49


4


Azzurri’s strategy

Our strategy is simple... – to strive to be the leading Italian Food business in the UK, through:

Running great restaurantsDrive growth in profits from existing restaurants through: – continual innovation and evolution

of the proposition– improved operational focus on ‘restaurant basics’ to deliver quality and value to our customers – use of increasingly sophisticated

marketing techniques to engage with our customers and encourage loyalty

– proactive management of our cost base to continually improve margins

Expansion Grow the core business through the roll-out of our key brands as well as exploring new and international markets

Innovation Seek to add further incremental business through new concepts and other revenue streams

Azzurri’s strengthsOutstanding:

• Brands

• Quality

• Service

• Value

• People & culture

• Trading record

• Growth potential



5Chairman’s statement

The newly formed Azzurri Group has become a major player in the UK casual dining sector, having acquired the ASK Italian and Zizzi businesses from the Gondola Group in January 2015 for approximately £250 million. With over 250 sites in the UK, it is a market leader in full Italian casual dining, with two highly complementary brands appealing to a broad customer base across diverse locations. The existing management team has remained with the business following the transaction, enabling the Group to capitalise on the significant progress made in the last few years under Gondola’s stewardship.

It has been a year of exceptional results and achievements. The ASK Italian and Zizzi businesses grew their EBITDA by over 16% from the previous year, with strides being made through like-for-like growth, new openings and margin expansion. Credit must go to our teams who contributed significant effort towards the acquisition, and ensured a smooth transition, successfully separating teams and infrastructure from Gondola. Additionally, during the year, the Group moved to new headquarters in Chapel Street, Marylebone.

We operate in a competitive and highly attractive growth sector, and our two core brands are well positioned to capitalise on that.

Zizzi, a contemporary, stylish brand, is now a major player in UK casual dining, operating out of 136 locations across the UK. Alongside 3 new Zizzi openings, 14 restaurants were transformed during the year and Zizzi is now in the unique position of having invested in every single restaurant within the last 6 years.

The repositioning of ASK Italian has continued, with 21 restaurants being refurbished during the year. Since 2012, 85 restaurants have been converted to the new format, which represents over 85% of the estate, in addition 11 new restaurants have been added. The refurbishment cycle will be fully complete by the end of the next financial year. Following the success of its repositioning, ASK Italian has moved back on to the acquisition trail, with four openings in the last 6 months including major city centre locations.

In July 2015, in a deal which completed shortly after the year end, Azzurri acquired Coco di Mama, one of London’s fastest growing quick service food brands, offering a range of quality hot and cold Italian grab-and-go food, with a speciality in hot pasta and quality coffee.

Serving around 30,000 customers a week at an average spend of £4, Coco di Mama now operates from 7 sites, 1 of which opened since acquisition, with an ever increasing pipeline.

The acquisition further complements Azzurri’s core brands. Coco di Mama is a well-run business with dedicated founders who share our ambition for brand evolution and growth. The founders have developed a unique brand offering quality Italian food, which is a product we know well.

The year has seen an enormous amount of positive change for our businesses, which our management and restaurant teams have delivered brilliantly and for which they deserve a huge amount of thanks and credit. We look forward to building on this during the year ahead, with our two core brands, ASK Italian and Zizzi, in great shape and a young, complementary business in Coco di Mama.

Harvey SmythChairman

“ The year has seen an enormous amount of positive change for our businesses, which our management and restaurant teams have delivered brilliantly and for which they deserve a huge amount of thanks and credit.”


6


www.askitalian.co.uk


http://www.askitalian.co.uk


7

A revitalised brand ready for future growth It has been another strong year for ASK Italian on a number of fronts as we continued with the major transformation programme that started with the repositioning work in 2010.

Refurbishment of the restaurants to reflect this Milanese inspired design continued at pace throughout the year, continues to deliver excellent returns and is now nearing completion.

Building on the success of the new opening in Birmingham the previous year, we are now confident that we can open in urban city centres and so opened a further 4 new restaurants in similar high profile locations. All new sites opened well and are trading comfortably in line with expectations.

Continued investments in the proposition including food, people and service have resulted in further progression on all our key brand metrics. Both our online customer survey and 3rd party studies have shown further significant strengthening of the brand across a wide variety of brand measures.

We were also delighted to receive further recognition adding the Menu Innovation & Development award for best Mediterranean Casual Dining Menu to our collection.

Through the on-going sophistication of our CRM tools we were able to better engage with our customers and drive trade with our targeted offers and promotions. With a focus on restaurant basics and strong operational controls we were able to deliver another strong year of profit growth.

Growing the estateWith a further 4 new openings we finished the year with 112 ASK Italian restaurants trading across the UK. We opened 2 in previously unrepresented major city centres with a site in Manchester Piccadilly Gardens and at the end of Princes Street in Edinburgh. Further openings in the major town of Maidstone and a new cinema development in Swindon completed the line-up for the year. We transformed a further 21 of our restaurants and now have over 85% of the estate reflecting the latest look and feel.

Each one embodies the brand design aesthetic which is fresh, contemporary Italian, yet warm and inviting. We have continued to evolve our look and push the design further, and this year we have incorporated striking new features, such as white neon signage and Italy maps, along with the introduction of some classic Italian finishes such as cork, brass, marble, and terrazzo.

We have also introduced more ‘foodie’ touches in the form of in store messaging and displays of coffee and our 100% Italian wine offer.

Authentic Italian foodOur menu innovation is driven by our passion for authentic Italian food made with the finest quality ingredients, shaped by the knowledge of our expert friends, acclaimed chef Theo Randall and Italy expert Carla Capalbo. Inspiration following a trip to Bologna helped to shape the launch of a new range of sourdough pizzas as well as unearthing authentic ways of adding depth to the Bolognese based dishes.

These classic, high volume dishes have been improved and are now truly outstanding.

A focus on the role of specials as an opportunity to reflect the ingredients of the season as well as bring something truly interesting and exciting for customers to enjoy led to popular dishes such as Pistachio & Olive Oil Cake, Tortelloni Mortadella and Cioccolato Supremo.

Other menu highlights this year included the introduction of Souffle con Funghi and, Zuppa di Fagioli con Pancetta as well as the return of the popular Duck Valpolicella to ensure truly special Christmas menus. Our Italian cocktails continue to grow in popularity and are particularly popular at Christmas and in the Summer.

“ With the success of new openings now proven in premium locations we are very well positioned for future growth.”


8


112Restaurants



9

Reaching our customers Building on the successful 2014 Spring ‘Respect the Pasta’ campaign a second burst of Respect the Pasta activity was activated in the Autumn. National awareness was achieved through a radio campaign fronted by Theo Randall and utilizing the pasta survey results to ensure coverage for ASK Italian. At a restaurant level and on social media we utilised World Pasta Day and our 21st birthday as tools to engage customers.

Ask Italian were the only restaurant group to capitalise on the Black Friday phenomenon, by using ‘random act of kindness’ to become part of the social conversations on the day. Targeting fatigued shoppers who were also social influencers with a chance to enjoy treats from the Christmas menu provided positive reviews and social reach.

To launch the new sourdough pizza category, a flaring competition was launched to gain local media coverage as well as create noise on social platforms, together with a sampling campaign under the banner ‘It’s all about the base’.

Customer satisfactionService across the business has improved materially over the year with significant progression seen on our internal service measures as well as on public sites. To support this, customer compliments received in the year reached a record high and our average Trip Advisor score is now higher than ever.

Our unique service proposition, AMICI, has continued to evolve and as well as become known for a friendly and welcoming service, is now focussed more on the consistency of customer experience.

Investing in our teams for the future We continue to invest in training and development via our bespoke learning framework, the ASK Italian Journey. As well as providing robust and structured training for all roles it has evolved this year to include specific modules to prepare managers for training others and for working in high volume sites; to better support our growth plans.

We have completed our fourth Avanti restaurant manager leadership programme which has again provided succession for key roles in our new openings and in the Operations field team.

We ran our first Head Chef Avanti leadership programme to develop our key Head Chefs’ leadership and commercial skills and to give them an understanding of how to develop a menu. The highlight was an inspirational trip to Puglia with Theo Randall, culminating in cooking lunch for our Olive Oil suppliers the Esposito brothers.

Our unique Italian Education programme provides inspiration for our team members on the seasons, ingredients and culture of Italy and their knowledge shines through in our Primo Competitions where we crowned Laura from Billericay our Primo Waiter and Norbert from Park Street our Primo Chef. We experienced Italy for ourselves taking some managers and head chefs on a winners trip to Bologna meeting suppliers and experiencing their very own Italian Education led by Carla Capalbo, our Expert friend.

Making a differenceWe have made a significant step towards our £1 million fundraising goal in support of Great Ormond Street Hospitals Children’s Charity (GOSHCC) having reached over £675,00 by the period end.

Our regular fundraising initiatives such as our Easter egg (where we give away a beautiful designer Italian egg in every site) and Pennies, (where we ask every customer paying by card to donate 25p) continue to deliver. Building on the success of the ‘ASK Italian Grand Tour’ the previous year, in July we held the ‘ASK Italian triathlon’. This event was well supported by restaurant teams, head office staff and suppliers and generated further additional fundraising.

Looking aheadIt has been another successful and eventful year for ASK Italian. The step forward in customer scores and the on-going success of our transformations demonstrates the strength of our proposition. With the success of new openings now proven in premium locations we are very well positioned for future growth.

We look forward to a year where we aim to complete the estate transformations, continue to evolve the proposition and then push the brand forward into new locations and opportunities.

£1 million fundraising goal“ Our regular fundraising initiatives such as our Easter egg (where we give away a beautiful designer Italian egg in every site) and Pennies, (where we ask every customer paying by card to donate 25p) continue to deliver.”



10

www.zizzi.co.uk


http://www.zizzi.co.uk


11

“ WE’RE PROUD TO HAVE A FULLY INVESTED ESTATE WITH A NEW DESIGN EVOLUTION THAT IS DELIVERING OUTSTANDING RESULTS.”

Leading Italian brand with continued momentumIn the last year the Zizzi brand has seen significant growth and is gaining momentum. This achievement has been made possible behind a fully transformed estate, delivering an improved customer experience across all measures and ever increasing brand awareness and consideration.

This year we have opened 3 new restaurants in prime locations taking our estate to 136 restaurants. The evolution of our restaurant designs is helping to deliver exceptional results and we’re proud to be one of the only major high street chains to have a fully invested estate.

In food, we continue to differentiate our offering in a crowded market place by tirelessly focusing on every element of the dish from the vibrancy and freshness of the ingredients to the stylish presentation.

Zizzi’s successful brand evolution across all elements of the proposition has confirmed our view that we can take our offering not only to new customers in the UK, but also extend our reach into new geographies.

Growing and strengthening our estateDuring the year we opened three new restaurants in Stratford upon Avon, Telford and Glasgow Silverburn. We individually design each of our restaurants to reflect the personality of the location using local artists and inspiring features to deliver a depth of character in our restaurants not seen in other high street chains.

We completed our transformation cycle this year with 14 refurbishments using the new, modern, rustic design evolution and striking new shop front design. The combination of hague blue shop fronts with vibrant pink awnings and illuminated Zizzi signage has created real stand-out on the high street.

Passion for great food and drinksThe pace of innovation in food is ever increasing and customers are becoming more demanding for high quality, interesting and tempting food. At Zizzi, a dedicated food team monitors trends in ingredients, eating habits and presentation to ensure our menu delivers the perfect balance between our much loved favourites and new on-trend dishes that are fun and interesting to try.

During the year we launched two new menus as well as a series of seasonal specials. The summer saw the launch of a range of cocktails, served in jar style glasses, and a dessert pizza with melted chocolate, marshmallows and strawberries, both were an instant hit. Our Autumn menu saw the introduction of a Pulled Pork Rustica pizza which became a firm favourite. For the chocolate lovers, the Chocolate Praline and Sea Salt Torte was a strong addition to our dessert menu. We were delighted to win a Great Taste award for our new Honey, Sea Salt and Mascarpone Gelato.



12

136ReStaurAnts



13

“ OUR NEW HONEY, SEA SALT AND MASCARPONE GELATO WON A GREAT TASTE AWARD.”

Building capabilityOur people are critical to the success of Zizzi and we are committed to building the capability of our people and harnessing every individual’s talent to drive our business forward. This year has seen the nationwide launch of the Zizzi Head Chef Academy and we were thrilled to win a bronze award at The Training Journal awards in 2015 for this program.

We have also launched internal development programs for Supervisors and Assistant Managers, providing clear development paths for progression and succession planning that have been positively received by our teams.

During the year we successfully piloted a new apprenticeship programme with 20 employees that leads to nationally recognised vocational qualifications. Based on the success of this pilot we now aim to roll out this programme nationally in January 2016.

Driving awareness and engagement Zizzi has an offer that is well defined and recognised, resonating with both new and existing customers. This is reflected in our brand health scores which show highest ever level of awareness and consideration for the brand.

We have made strong progress in building brand awareness and engagement through our digital channels. Through the year we have seen improved engagement with email marketing from triggered campaigns and responsive design. On social platforms, our focus on creativity and linking to newsworthy events has driven strong engagement with our content and 25% growth in fans and followers.

Standing Up for our communityThis year has seen us partner with Stand Up To Cancer, a joint national fund raising campaign from Cancer Research UK and Channel 4 that is focused on accelerating ground-breaking research and saving more lives.

In our first year we have raised £250,000 as part of our overall commitment to raise £1 million within 3 years for this incredibly worthwhile cause. Last September a group climbed the UK’s highest 3 peaks in the fund-raising effort and we have also added a dish to our menu, the Skinny Pollo Roquito pizza where 25 pence from each dish sold is donated to Cancer Research UK.

Looking aheadThe Zizzi business is in great shape and building in momentum behind a fully transformed estate, a differentiated and strong proposition that is growing in awareness. We have a strong pipeline of new openings for the UK in the next year as well as plans to expand our geographical reach making Zizzi accessible to more customers. Zizzi is one of the leading Italian restaurant chains in the market and we’re confident in the long term growth potential of the brand.


14


Financial review

Azzurri Group Limited The reported statutory results cover the period 3 July 2014 to 28 June 2015 for the consolidated Group. This is the first period in which the Group operated, therefore no comparisons against the prior year can be made.

2014/15 3 July 2014 to28 June 2015

£m

Total restaurant sales 93.9EBITDA1 13.2Margin 14.1%Depreciation (4.7)EBITA2 8.5Margin 9.6%Goodwill amortisation (3.3)EBIT3 5.2Exceptional items (4.7)Operating profit 0.7

The above results include those of the trading company, Azzurri Restaurants Limited, from the date of the acquisition of Azzurri Central Limited by Azzurri Trading Limited on 21 January 2015.

1 EBITDA is defined as EBITA plus depreciation and amortisation (excluding exceptional items)

2 EBITA is defined as EBIT plus goodwill amortisation. Goodwill of approximately £154 million was established following the acquisition of the business in January 2015 and this is being amortised over 20 years

3 EBIT is defined as operating profit excluding exceptional costs

Azzurri Restaurants Limited To allow a meaningful comparison of the business performance the results of the trading company for the 52 weeks ending 28 June 2015 is compared with its prior year below.

2014/1552 weeks

£m

2013/1452 weeks

£m

52 weekChange

%

Total restaurant sales 217.7 204.3 6.5%EBITDA 31.8 27.3 16.5%Margin 14.6% 13.4%Depreciation (10.9) (10.4) 4.8%EBITA 20.9 16.9 23.7%Margin 9.6% 8.2%Goodwill amortisation – – 0.0%EBIT 20.9 16.9 26.0%Exceptional items (2.1) (0.2) 810.6%Operating profit 18.8 16.7 20.4%



15Financial review

Performance summaryTotal sales for the period since acquisition of the ASK Italian & Zizzi business were £93.9 million with EBITDA of £13.2 million.

The results of the trading company for the full year included total restaurant sales of £217.7 million which is 6.5% year on year growth. EBITDA margin increased by 1.2% to 14.6% and total EBITDA increased by 16.5% to £31.8 million.

Both brands saw a year of good growth, despite a slight market softening across the industry in the second half of the year. Sales momentum in both brands has been underpinned by the continued development of the core proposition and further investment in our estate.

Azzurri’s determination to be the leading Italian Food business in the UK steered our focus towards continued menu innovation, ongoing design evolution of our restaurants, as well as an improved customer experience. Greater customer engagement was achieved through better leverage of social media platforms and targeted promotional activity, as well as a stronger focus on customer feedback.

In line with our longer term investment plan, Azzurri has:• continued to invest in new openings across

the Group – a total of 7 new restaurants opened during the financial year, 4 of which opened under Azzurri’s ownership

• continued to invest in maintaining the quality of our estate through 35 transformations and refurbishments, 10 of which were completed under Azzurri’s ownership (the Zizzi estate is now fully invested and the ASK estate will be by the end of next year)

Market updateUK GDP and consumer confidence have continued to increase during the year, and this is reflected in positive trends across the eating out market. The restaurant sector has continued to grow, both in terms of new space created and in organic, like-for-like revenue. Branded restaurants, rather than independent restaurants, are spearheading this growth, with 20 of the UK’s core casual dining brands registering like-for-like growth of 3.5% in the year to June 2015 (source: Coffer Peach Business Tracker), while growth from pubs and pub-restaurants remains slower.

Input price inflation has remained low, due to a number of factors including good global food harvests and a significant strengthening of sterling against the Euro. Wage inflation looks set to rise at significant levels, with the National Minimum Wage increasing 19 pence in October 2014, and a further 20 pence in October 2015 prior to the introduction of a National Living Wage for over 25’s in April 2016 at £7.20 initially but increasing to £9.00 by 2020. The strengthening of the economy, together with competition for sites, is leading to the highest rate of rental inflation seen for several years.

Group cash flowNet cash inflow from operations since the date of acquisition of the ASK and Zizzi businesses totalled £4.0 million.

During the period, the key components of cash flow were: • net investment of £10.2 million in new

restaurants and the maintenance of the existing estate

• cash flow from financing activities included proceeds from bank debt of £120 million, proceeds from shareholder debt of £100 million, issue of preference and ordinary share capital of £46.0 million

• the above proceeds were used to finance the acquisition of Azzurri Central Limited for net cash of £249.0 million

Group financingThe Group’s financing structure, implemented during the period, comprises three main components:• external bank debt• shareholder loan notes• shareholder equity

The Group’s external senior debt was syndicated to a number of participating financial institutions with maturity dates of June 2020 and June 2021. Further details are provided in notes 15 and 23 to the financial statements. In addition, the Group has a revolving credit facility of £10 million, £8 million of which was undrawn at the year end and a £15 million undrawn capex facility. The external bank debt facilities are subject to certain covenants commencing September 2015.

The loan notes and equity were provided primarily by Bridgepoint, together with smaller investments by Hermes and management. Interest on the shareholder loan notes rolls up into the principal balance and is not due for payment until the maturity or repayment of the respective loan.

Group taxation The Group paid no corporation tax in relation to the period. Two key features of its business act to reduce taxable profits:• significant capital expenditure investment,

which qualifies for capital allowances that are designed to encourage such investment

• interest payments on external debt and shareholder loans, a proportion of which will be agreed as deductible for tax purposes with HMRC

Although no corporation tax arose during the period, the Group’s contribution to the UK Exchequer is significant, contributing over £26 million during the financial period since the acquisition of the ASK Italian and Zizzi businesses in January.

■ Rates and council tax £3.7 million■ Stamp duty land tax £0.1 million■ Employers’ NIC £2.4 million■ Employees’ PAYE/NIC £5.8 million■ VAT paid £14.0 million


16


Board of Directors

Steve HolmesChief Executive OfficerSteve was appointed Chief Executive Officer of the Group in January 2015, prior to which he was Chief Executive Officer of ASK Italian & Zizzi since 2014 and Managing Director of ASK Italian since 2012. Prior to joining ASK Italian, Steve held a number of senior operational roles in various casual dining brands, including 8 years at PizzaExpress.

Mike BlackNon-Executive DirectorMike became a Non-Executive Director of the Group in January 2015. He is Managing Partner of Bridgepoint Development Capital, a partner of Bridgepoint and a member of the Firm’s Group Board, having joined them in 1996. Prior to joining Bridgepoint Mike worked at Natwest Markets for seven years, gaining broad experience in the capital markets, investment banking and acquisition finance divisions. He is an Economics graduate from the University of York.

Harvey SmythChairmanHarvey became Chairman of the Group in January 2015. He was previously Chief Executive Officer of the Gondola Group and PizzaExpress, Deputy Chief Executive Officer and UK Managing Director of Pret A Manger. Harvey has a degree in biochemistry from Bristol University and is also a qualified Chartered Accountant.

Jason McGibbonNon-Executive DirectorJason became a Non-Executive Director of the Group in January 2015 after being involved in the acquisition. He is a Partner of Bridgepoint and leads their Consumer team. Jason joined Bridgepoint in 2000 and was formerly responsible for Bridgepoint’s investment activities in Turkey and spent time based in Frankfurt and the Nordic region. He has a degree from the University of Strathclyde Business School and is a qualified Chartered Accountant.

Jim Pickworth Chief Financial OfficerJim was appointed Chief Financial Officer of the Group in January 2015, following his role as Chief Financial Officer of ASK Italian & Zizzi since 2013 and for 6 years prior to that, he was Finance Director at Zizzi. He was previously Finance Director for Yo! Sushi and Group Finance Director for Pret A Manger, and held a number of finance roles at McDonalds. He qualified as a Chartered Accountant at Ernst & Young.

Kieran Pitcher Group Property DirectorKieran was appointed Group Property Director in January 2015, having been Group Property Director of the Gondola Group since 2007. Prior to this he was Property Director at the Restaurant Group and Laurel Pub Company. Kieran graduated with a degree in estate management and was appointed a member of the Royal Institute of Chartered Surveyors in 1993.



17Strategic report for the period 3 July 2014 to 28 June 2015

The Directors present their first strategic report for Azzurri Group Limited (‘the Company’) and its subsidiaries (together ‘the Group’) for the period from 3 July 2014 to 28 June 2015 (‘the period’).

Principal activities, business review and future developmentsThe Company was incorporated on 3 July 2014, as De Facto 2131 Limited, to carry out its activity as an investment company, on 11 March 2015 the Company changed its name to Azzurri Group Limited.

During the period the Group acquired the ASK and Zizzi business via a number of holding companies. The business was acquired via the purchase of Azzurri Central Limited (formerly Gondola Central Limited) from Gondola Holdings on 21 January 2015.

Azzurri Central Limited holds a 100 per cent share in its trading subsidiary, Azzurri Restaurants Limited (‘the trading company’), which operates the ASK Italian and Zizzi restaurant brands.

Together, this group of companies forms the Azzurri Group of companies (together ‘the Group’), the principal activity is operating restaurants.

The Group measures performance using the following three key performance indicators (‘KPIs’), for purposes of meaningful comparison KPI’s were measured for the trading company:• Sales versus prior year; • Pre-exceptional EBITDA (earnings before

tax, depreciation, amortisation and exceptional items) versus prior year; and

• The number of open restaurants versus prior year.

A review of the Group’s operations and performance during the period and of future developments is included in the Business Review on pages 6 to 15, which forms part of this report.

Results and performance of the GroupThe results of the Group for the period are set out on page 24 and show a loss on ordinary activities before taxation of £10.2 million. The total shareholders’ deficit as at 28 June 2015 is £9.5 million.

These results, however, only include those of the trading company from the date of acquisition of Azzurri Central Limited. In addition, as this is the first period in which the Group as a whole has operated, no prior year comparisons are able to be made. As such, the Directors have deemed it appropriate to measure performance of the Group using the 52 week results of the trading company, even though it was only under the ownership of the Company since 21 January 2015. The results of the trading company for the period 30 June 2014 to 28 June 2015 is compared with the 52 weeks ended 29 June 2014 below.

Results and performance of the trading company The trading company implemented various successful initiatives in line with its strategy to improve; and its current year trading has also been assisted by the improving macro-economic environment in the UK market.

Sales and sales growth – The trading company increased sales to £217.7 million during the period (2014: £204.3 million) representing sales growth of 6.6% (2014: 5.3%).

Gross profit – The trading company increased its gross profit during the period to 17.4% (2014: 14.0%).

Pre-exceptional EBITDA – The trading company’s total EBITDA increased to £31.8 million (2014: £27.3 million).

Exceptional costs – The trading company incurred exceptional costs during the year of £0.8 million (2014: £0.2 million) relating to its separation from the Gondola Group.

Despite the market softening across the industry in the second half of the year, the Group remains a positive outlook on trading conditions. Both ASK Italian and Zizzi performed well and saw a good year of growth. The continued development of the core proposition with a focus on menu innovation, ongoing design evolution and an improved customer experience, together with clear plans for further growth through the opening of new restaurants in the near future, Azzurri’s brands are well positioned to continue their strong performance.

Key performance indicators The performance of the trading company is measured through the use of key performance indicators as follows:

Performance indicator

Actual2015

Actual 2014

Growth%

Sales £217.7m £204.3m 6.6%Pre- exceptional EBITDA

£31.8m £27.3m 16.5%

Number of restaurants

248 243 2.1%

Other key indicators used by the Board and executive management include:

New sites opened – Expansion is a key driver and potential new sites are subject to a rigorous appraisal process before approval.

Financial indicators – Notably, like-for-like sales growth, and labour and food margins.

People measures – Including staff and management turnover, tenure and stability.

Customer satisfaction – Measures from both third party sources and our own on-line customer surveys.


18


Strategic report for the period 3 July 2014 to 28 June 2015

Principal business risks and uncertaintiesThe Board of Directors (‘the Board’) has the primary responsibility for identifying the principal risks which the business faces and for developing appropriate policies to manage those risks. To assist with this process, the Group maintains a risk register which is regularly reviewed and an annual Risk Review summary is presented to the Board.

Given the nature of the Group’s businesses, the principal business risks are as follows:

Economic conditions – Adverse economic conditions and uncertainty can lead to challenging market conditions which could result in pressure on all functions of the business. A medium term business plan coupled with regular forecasting allows us to pre-empt any periods of difficulty and act early.

Employee retention – With our biggest asset being our employees, it is critical to attract and retain the best people at all levels. We review our employment policies regularly and are committed to investing in our teams with competitive reward structures and comprehensive training and development programmes.

Health & Safety – The Group maintains a strong focus on its food safety and health and safety standards, with the wellbeing of our teams and customers being paramount. Standards are monitored regularly across all of our sites, and compliance with legislation and best practice taken very seriously across the business.

Continuity of supply chain – Our operations remain heavily dependent on key suppliers and distributors. We closely monitor against key supplier service level agreements, with contingent arrangements in place where necessary.

Reputation – Failure to maintain the high standards we have set can quickly affect public perception and could damage our brands. We monitor our customer service and operating standards regularly, and have dedicated quality and safety, and customer services teams. A crisis management process is also in place in the event of serious incidents.

These are the principal risks affecting the Group operations, but is not an exhaustive list. The comprehensive risk register ensures the Board are appraised of all risks, and contingent actions to mitigate them.

By order of the Board

James PickworthCompany secretary14 October 2015



19Directors’ report

The Directors present their Annual Report for the Company and the Group together with their audited consolidated financial statements for the period from 3 July to 28 June 2015. As this is the first period of operation for the Group, no comparative information is presented. The basis of preparation of the financial statements is set out in note 2 on pages 30 and 31.

Results and dividendsThe results of the Group for the period are set out on page 24.

The Directors do not recommend the payment of a dividend.

Directors The Directors of the Company during the period and up to the date of signing the financial statements, unless otherwise stated, are:

• Harvey Smyth (appointed 21 January 2015)• Stephen Holmes (appointed 21 January 2015)• James Pickworth (appointed 21 January 2015)• Kieran Pitcher (appointed 21 January 2015)• Michael Black (appointed 21 January 2015)• Jason McGibbon (appointed 19 November 2014)• Benoit Alteraic (appointed 19 November

2014, resigned 21 January 2015)• Ihor Shershunovych (appointed, 3 July 2014,

resigned 19 November 2014)• Travers Smith Limited (appointed,

3 July 2014, resigned 19 November 2014)• Travers Smith Secretaries Limited

(appointed, 3 July 2014, resigned 19 November 2014)

A brief summary of the experience of each Director is provided on page 16.

Charitable and political donationsThe Group makes significant contributions to community related initiatives and uses the sale of certain menu items to raise funds for specific causes as described in the Business Review set out on pages 6 to 15.

The Group made no political donations in the period.

Going concern The Group’s financial performance and position is described in the Financial review on pages 14 and 15. The Directors have reviewed cash flow forecasts for a five year period from the year end date which indicate the Group will be able to meet all its liabilities when they fall due. Projected covenant compliance and liquidity is also monitored, and the directors are satisfied, having taken into account current and expected market conditions, that sufficient headroom in the forecast exists at all levels. In addition, the maturity dates for all of the Group’s banking arrangements are to 2020 and later. The Directors have therefore continued to adopt the going concern basis in preparing the financial statements.

Post balance sheet eventsSubsequent to the balance sheet date, on 8 July 2015, Azzurri Central Limited set up CDM Group Limited and its subsidiary CDM Holdco Limited to acquire CDM Trading Limited (previously Tenfour Ventures Limited), trading as Coco di Mama. See note 26 for further details on this.

EmployeesServing around 14 million meals a year to customers in our restaurants, our people truly are our greatest asset and we believe in treating them as such: with respect, looking after their welfare and allowing them the freedom to be themselves and to flourish.

We encourage a work environment that is fair, open and communicative, with many benefits for our employees.

Our employees have a performance review at least once a year, which includes consideration of skills development and career prospects. We aim to retain, develop and promote our best staff, offering a variety of training courses and development opportunities.

Informal, frank and open dialogue is encouraged at all levels of the Group. We aim to keep our employees informed of any changes and progress with the business on a regular basis in an engaging way.

Communication flows both ways, as we take the views of our employees seriously. Our aim has been to make it as easy as possible for our employees to air their opinions, express their ideas and voice any problems they may have. Examples include a cascade process of meetings to communicate key messages throughout the organisation, a weekly feedback process for operational issues and a bright ideas scheme.

We have a diverse workforce and an equal opportunities policy in place. We aim to employ people who reflect the diverse nature of society and value people and their contribution irrespective of age, sex, disability, sexual orientation, race, colour, religion, marital status or ethnic origin.

We do not tolerate harassment or bullying in any shape or form. Procedures are in place to respond to accusations of workplace discrimination, harassment and victimisation. An effective employee grievance procedure is in operation, and the policy is properly communicated to our people.

Applications from disabled persons are given full consideration providing the disability does not seriously affect the performance of their duties. Such persons, once employed, are given appropriate training and equal opportunities.

EnvironmentThe Azzurri Group has continued to reduce its impact on the environment by reducing its carbon footprint. There are a number of on-going environmental programmes that work to do this and include the following:• Separating Food Waste is in operation in

164 restaurants across both brands with a target for the majority of the Group by the end of December 2015. This will increase our total recycling to 85%. This is in partnership with our national waste contractor, SWR.

• Each brand has its own Energy Efficiency programme, which is aimed at reducing energy and water usage by both design and user campaigns.

• The Group continues to introduce Smart Meters monitoring them remotely to ensure equipment is not over-used or utilised too early or inappropriately.

• ASK are members of the SRA (Sustainable Restaurant Association) to further assist them in their sustainability journey.

• All light bulbs are being replaced with energy efficient bulbs and energy efficiency of equipment is considered in relation to all new purchases.

Financial risk managementThe Group’s activities expose it to a variety of financial risks: foreign exchange risk, credit risk, liquidity risk, cash flow risk, interest rate risk and price risk. The Group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. Risk management is carried out by the Group under guidance by the Board. The Group identifies, evaluates and addresses financial risks in close co-operation with the Group’s operating units.


20


Directors’ report

(a) Foreign exchange riskThe Group operates in the United Kingdom only and is therefore not susceptible to foreign exchange risk in the normal course of trading.

Foreign exchange risk may however arise from commercial transactions, as the Group purchases certain goods from European suppliers. The Group has hedging agreements in place to protect itself from the risks as a result in any adverse movements in the Euro.

The finance function is responsible for managing the net position in each foreign currency (namely Euros). This currency exposure is not material as at the date of this report. Currency exposures are reviewed regularly.

(b) Credit riskThe Group has no significant concentrations of credit risk. The nature of its operations results in a large and diverse customer base and a significant proportion of cash sales. The Group has policies that limit the amount of credit exposure to any financial institution.

(c) Liquidity riskThe Group manages its exposure to liquidity risk through a naturally low level of debtors, maintaining a diversity of funding sources and the spreading of debt repayments over a range of maturities.

(d) Cash flow and interest rate riskThe Group’s income and operating cash flows are substantially independent of changes in market interest rates. The Group’s interest rate risk arises from long term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings are fixed for 6 months from February 2015 and majority hedged from August 2015.

(e) Price riskThe Group is exposed to the variability in the price of commodities used in the running of our restaurants, this includes exposure to price fluctuations in ingredients purchased. The Group mitigates this risk by entering into price negotiations with suppliers to fix and reduce costs where possible.

Directors’ responsibilities statementThe Directors are responsible for preparing the Strategic Report, 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 period. Under that law the Directors have prepared the Group and Parent Company 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 Group and the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements 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 and the Group 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 the Group, 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 the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Electronic publicationThe maintenance and integrity of the Azzurri Group website is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors’ indemnitiesQualifying third party indemnity provisions for the benefit of Directors, as defined by the Companies Act 2006, have been in force during the period and at the date of approval of the Annual Report.

Provision of information to auditorsEach of the persons who is a Director at the date of approval of this report confirms that: (1) so far as the Director is aware, there is no

relevant audit information of which the Company’s auditors are unaware; and

(2) each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

This confirmation is given and should be interpreted in accordance with the provisions of s418(2) of the Companies Act 2006.

Independent auditors PricewaterhouseCoopers LLP have indicated their willingness to continue in office and a resolution concerning their re-appointment will be proposed at the Annual General Meeting.

By order of the Board

James Pickworth Company secretary14 October 2015



21Corporate governance report

The Group is committed to high standards of corporate governance appropriate for a large, private company and the Board is accountable to all of the Group’s shareholders, including minority shareholdings held by management and employees, for good corporate governance.

The BoardThe current board was put in place, following the acquisition of Azzurri Central Limited in January 2015. The Board considers that it is of an appropriate size for the requirements of the business, and that it has the appropriate balance of skills, knowledge and experience.

The Board comprises a chairman, two Non-Executive Directors and three executive Directors, who were part of the management team of the trading company prior to acquisition.

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 assess and manage risk.

The Board meets regularly throughout the year and, in addition to the routine reporting of financial and operational issues, reviews the performance of each of the brands in detail. There is a schedule of matters reserved for the Board and certain matters are delegated to the Board’s Committees and the executive Directors. The schedule of reserved matters includes approval of annual budgets, strategic plans, senior management appointments, dividend policy and capital structure, major contracts and major capital expenditure. Items delegated to the executive Directors include the approval of capital or other expenditure below the limits required for board sign off, disposal of low value assets and approval of minor contracts or less senior appointments.

The Board is scheduled to meet between eight and twelve times each financial period.

The executive responsibility for overseeing the day-to-day management of the Group is delegated to Stephen Holmes, the Chief Executive, together with his executive team.

There is a clear division of responsibility between the Non-Executive Chairman and the executive Directors.

The Chairman is responsible for:• the leadership of the Board, ensuring its

effectiveness and setting its agenda; and• facilitation of the effective contribution

of Non-Executive Directors, and ensuring constructive relations between them and the executive Directors.

The executive Directors are responsible for:• setting the strategic direction of the Group;• preparing annual budgets and medium term

projections for the Group and monitoring performance against plans and budgets;

• overseeing the day-to-day management of the Group;

• effective communication with shareholders; and

• preparing the annual financial statements.

The Company Secretary acts as secretary to the Board and its committees. He is responsible for ensuring that the Directors receive appropriate information prior to meetings, and for ensuring that governance requirements are considered and implemented.

The Remuneration Committee has undertaken a review of the effectiveness of the executive Directors during the year, reporting to the Chairman. Executive Directors are included in the annual performance evaluation of all senior management, which includes a review of performance against a range of specific objectives.

Relations with ShareholdersThe Group is committed to maintaining effective communication with all of its shareholders in order to maintain a clear understanding of its objectives and its performance against those objectives.

The two Non-Executive Directors are appointed by the largest shareholders of the Group, the Bridgepoint Funds. The remaining shareholders of the Group include Hermes GPE PEC II L.P, senior management and employees of the Group who hold shares through the ‘Azzurri Equity Plan’ and ‘Azzurri Investment Plan’ which were established following the acquisition of Azzurri Central Limited. Employees receive regular communication about the performance of the Group, as described on page 19.

Remuneration CommitteeThis committee comprises the Chairman, the Chief Executive and two of the Non-Executive Directors and is chaired by Michael Black.

The Remuneration Committee is responsible for the following key areas:• determining the participation of Directors

and employees in the Azzurri Equity Plan and Azzurri Investment Plan;

• agreeing the framework for the remuneration of the executive Directors and other senior executives, and determining the total individual remuneration packages of each person, including pension arrangements. The Chief Executive is not present when his own remuneration package is determined;

• determining specific incentives for the executive Directors and senior management to encourage enhanced performance by being rewarded in a fair manner for their individual contributions to the success of the Group;

• ensuring that contractual terms on termination and any payments made are fair to the individual and to the Group (and that failure is not rewarded); and

• evaluating the performance of the executive Directors against objectives set.

Audit CommitteeThis committee comprises the Chairman, the Chief Financial Officer and two of the Non-Executive Directors and is chaired by Harvey Smyth. Relevant senior management are invited to attend audit committee meetings as required.

The Audit Committee 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. In addition, the committee is responsible for ensuring that an objective and professional relationship is maintained with the external auditors.

Key areas for which the committee is responsible include:• reviewing the Group’s financial statements

prior to approval on behalf of the Board and reviewing the external auditors’ reports thereon;

• establishing procedures to ensure that the Group monitors and evaluates risks appropriately;

• reviewing internal controls and establishing an internal audit plan to monitor the effectiveness of those controls;

• considering the consistency of accounting policies across the Group and the accounting for any significant or unusual transactions where different approaches are possible; and

• assessing the effectiveness, independence and objectivity of the external auditors.


22


Corporate governance report

Taxation policy In line with its overall approach to corporate governance, Azzurri is committed to suitably strong governance in relation to all of its tax affairs.

The Group seeks to:• structure its affairs in a tax efficient way,

as would be expected in order to ensure commercial effectiveness, but using a straightforward and transparent approach without use of any aggressive tax planning strategies;

• ensure that it pays all taxes which are due (and to do so promptly);

• maintain adequate systems, processes and adequately experienced staff in order to achieve the above; and

• maintain a transparent and constructive relationship with HMRC.

Azzurri’s tax affairs are relatively straight-forward, given that it is UK domiciled and that it operates in a sector which does not have inherent complexity – i.e. consumer-facing, with no long term or complicated revenue streams and relatively predictable cost structures.

In managing its affairs, the Group’s aim is to limit tax related uncertainty. Our approach is to discuss significant transactions openly with the tax authorities in ‘real time’, as far as is commercially practicable. Where there is uncertainty in relation to a material tax issue, we will seek to obtain tax authority agreement/clearance in advance where practicable.

The Group is currently reconfirming agreements with HMRC to agree appropriate treatment of the following major areas:• capital allowances – representing the

amortisation for tax purposes of the significant capital investments we make in our estate (to open new restaurants and maintain the condition of existing ones);

• interest on external bank debt and shareholder loans – to determine the amount of interest which should be deductible for tax purposes; and

• VAT treatment for specific revenue categories – to clarify the VAT treatment of non-standard sales transactions, property transactions, membership subscriptions or sales of gift cards/vouchers.



23Independent auditors’ report to the members of Azzurri Group Limited

Report on the financial statementsOur opinionIn our opinion, Azzurri Group Limited’s group financial statements and company financial statements (the ‘financial statements’):• give a true and fair view of the state of the

Group’s and of the Company’s affairs as at 28 June 2015 and of the Group’s loss and cash flows for the period 3 July 2014 to 28 June 2015 (‘the period’);

• 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.

What we have auditedThe financial statements comprise:• the consolidated and company balance sheets

as at 28 June 2015;• the consolidated profit and loss account

and the consolidated statement of total recognised gains and losses for the period then ended;

• the consolidated cash flow statement for the period then ended;

• the consolidated reconciliation of movements in shareholders’ deficit for the period then ended; and

• the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information.

The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

In applying the financial reporting framework, the directors have made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

Opinion on other matter prescribed by the Companies Act 2006In our opinion the information given in the Strategic Report and the Directors’ report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Other matters on which we are required to report by exceptionAdequacy of accounting records and information and explanations receivedUnder the Companies Act 2006 we are required to report to you if, in our opinion:• we have not received all the information and

explanations we require for our audit; or• adequate accounting records have not been

kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the Company financial statements are not in agreement with the accounting records and returns.

We have no exceptions to report arising from this responsibility.

Directors’ remunerationUnder the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of directors’ remuneration specified by law are not made. We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the auditOur responsibilities and those of the directorsAs explained more fully in the Directors’ responsibilities statement set out on page 20, 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) (‘ISAs (UK & Ireland)’). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involvesWe conducted our audit in accordance with ISAs (UK & Ireland). 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 Group’s and 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.

We primarily focus our work in these areas by assessing the directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements.

We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both.

In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Simon Bailey (Senior Statutory Auditor)for and on behalf of PricewaterhouseCoopers LLPChartered Accountants and Statutory AuditorsGatwick14 October 2015


24


Financial statements

Consolidated profit and loss accountfor the period ended 28 June 2015

Note

3 July 2014 to28 June 2015

£m

Group turnover 3 93.9Cost of sales (77.9)Gross profit 16.0Administrative expenses (10.6)Exceptional administrative costs 5 (4.7)Total administrative expenses (15.3)Group operating profit 0.7Loss on disposal of fixed assets (0.3)Profit on ordinary activities before interest and taxation 0.4Net interest payable and similar charges 7 (10.6)Loss on ordinary activities before taxation (10.2)Tax on loss on ordinary activities 8 (0.4)Loss for the financial period (10.6)

The results above all relate to continuing operations.

There is no material difference between the loss on ordinary activities before taxation and the loss for the financial period stated above and their historical cost equivalents.

As permitted by Section 408 of the Companies Act 2006, a profit and loss account for Azzurri Group Limited has not been presented in these Financial Statements. For the period from the 3 July 2014 to 28 June 2015 the Company generated a loss of £2.4 million.



25Financial statements

Consolidated statement of total recognised gains and losses for the period ended 28 June 2015

28 June 2015£m

Loss for the financial period (10.6)Foreign exchange gains 0.1Net increase in shareholders’ deficit (10.5)Opening shareholders’ deficit –Closing shareholders’ deficit (10.5)


26



Consolidated balance sheet as at 28 June 2015

Note28 June 2015

£m

Fixed assets Intangible assets 9 153.9 Tangible assets 10 130.5 284.4 Current assets Stocks 11 6.9 Debtors 12 9.7 Cash at bank and in hand 13 4.8 21.4 Creditors: amounts falling due within one year 14 (40.0)Net current liabilities (18.6)Total assets less current liabilities 265.8 Creditors: amounts falling due after more than one year 15 (264.2)Provisions for liabilities 16 (11.1)Net liabilities (9.5)Capital and reserves Called up share capital 18 – Share premium account 19 1.0 Profit and loss account 20 (10.5)Total shareholders’ deficit (9.5)

The financial statements on pages 24 to 49 were approved by the Board of Directors on 14 October 2015 and signed on its behalf by

Stephen Holmes James PickworthDirector Director

Company registration number: 09115901




Company balance sheet as at 28 June 2015

Note28 June 2015

£m

Fixed assets Investments 17 46.0

46.0 Current assetsDebtors 12 0.1Net current assets 0.1 Creditors: amounts falling due after more than one year 15 (47.5)Total assets less current liabilities (1.4)Net liabilities (1.4)Capital and reserves Called up share capital 18 – Share premium account 19 1.0 Profit and loss account 20 (2.4)Total shareholders’ funds (1.4)

The financial statements on pages 24 to 49 were approved by the Board of Directors on 14 October 2015 and signed on its behalf by

Stephen Holmes James PickworthDirector Director

Company registration number: 09115901


28



Consolidated reconciliation of movements in shareholders’ deficit for the period ended 28 June 2015

Group28 June 2015

£m

Issue of ordinary share capital (note 18) 1.0 Loss for the financial period (10.6)Foreign exchange gains 0.1 Net increase in shareholders’ deficit (9.5)Opening shareholders’ deficit – Closing shareholders’ deficit (9.5)

Company28 June 2015

£m

Issue of ordinary share capital (note 18) 1.0 Loss for the financial period (2.4)Net increase in shareholders’ deficit (1.4)Opening shareholders’ deficit – Closing shareholders’ deficit (1.4)




Consolidated cash flow statement for the period ended 28 June 2015

Note

3 July 2014 to28 June 2015

£m

Net cash inflow from operating activities 21 4.0Returns on investments and servicing of financeInterest paid (0.8)Net cash outflow from returns on investments and servicing of finance (0.8)Taxation paid (1.0)Capital expenditure and financial investmentPurchase of tangible fixed assets (10.2)Net cash outflow from capital expenditure and financial investment (10.2)Purchase of subsidiary net of cash (249.0)Net cash outflow from acquisitions and disposals (249.0)Net cash outflow before financing (257.0)FinancingIssue of bank debt 113.8Issue of shareholder debt 100.0Issue of ordinary share capital 1.0Issue of preference shares 45.0Draw down of Revolver facility 2.0Net cash outflow from financing 261.8Increase in cash for period 21 (b), (c) 4.8


30


Notes to the financial statements

1 General information The principal activity of Azzurri Group Limited (‘Azzurri’ and the ‘Company’) and its subsidiaries (together, the ‘Group’) is operating restaurants.

The consolidated financial information presented is in respect of the underlying business of Azzurri Central Limited (including the ASK Italian and Zizzi businesses), together with the Group holding companies described in note 27 for the period ended 28 June 2015. The results of ASK Italian and Zizzi have been included from the date of acquisition of 21 January 2015. This is the first period in which the Group operate, therefore no comparisons against the prior year can be made.

2 Accounting policiesBasis of preparation The financial information has been prepared under the historical cost convention and in accordance with applicable accounting standards in the United Kingdom and with the Companies Act 2006. The most significant accounting policies, which have been applied consistently throughout the period, are described below. The Company is exempt under the terms of FRS8 from disclosing related party transactions with entities that are part of the Azzurri Group. The accounts are prepared in £m, rounded to the nearest 0.1, with the exception of notes 6, 15 and 18.

Going concernThe Directors have prepared the financial statements on a going concern basis. As the Group has total net liabilities of £9.5 million at 28 June 2015, management have prepared cash flow forecasts for a five year period from the year end date which indicate that the Group will be able to meet its liabilities when they fall due and the directors are satisfied, having taken into account current and expected

market conditions that sufficient headroom in the forecast exists at all levels. In addition, the Group banking and debt arrangements have maturity dates of July 2020 and later.

Basis of consolidationThe consolidated balance sheet includes all results, cash flows and the assets and liabilities of all subsidiaries. Subsidiaries acquired during the period are recorded using the acquisition method of accounting and their results are included from the date of acquisition. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill.

All transactions and balances between the Group’s businesses have been eliminated in the preparation of the consolidated financial information. All subsidiaries have co-terminous year ends and follow uniform accounting policies.

TurnoverTurnover represents net invoiced sales of food and beverages, and excludes value added tax. Turnover of restaurant services is recognised when the goods have been provided.

Allocation of costsCost of sales includes all direct costs incurred in restaurants. Administrative expenses include central and area management, administration and head office costs, together with goodwill amortisation.

Rental incomeRental income from operating leases is recognised on a straight line basis over the term of the relevant lease. It is netted off against rental costs and is recognised within administrative expenses.

Tangible fixed assetsTangible fixed assets are stated at historic purchase cost less accumulated depreciation. Cost includes the purchase price of the asset, together with incidental expenses incurred. Depreciation is provided at the following annual rates in order to write down to estimated residual values the cost of each asset over its estimated useful economic life on a straight-line basis:Plant 20% per annumFixtures 10% per annumMotor vehicles 25% per annumIT equipment 20-33% per annum

Short leasehold properties are depreciated over the length of the lease except where the anticipated renewal or extension of the lease is sufficiently certain so that a longer estimated useful life is appropriate. Current legislation and the terms of the lease contracts are such that the vast majority of leases are readily extendible by an additional 14 years. The maximum depreciation period for short term leasehold properties is 30 years.

The cost of freehold and leasehold properties is depreciated over the lesser of 50 years or the outstanding term of the lease.

Assets under construction comprise tangible fixed assets acquired for restaurants under construction, including costs directly attributable to bringing the asset into use. Assets are transferred to short leaseholds, plant and fixtures when the restaurant opens. No depreciation is provided on assets under construction, as these assets have not been brought into working condition for intended use.

Sales of properties are recognised in the financial statements when unconditional contracts are exchanged.

Impairment of fixed assetsThe carrying values of fixed assets are reviewed for impairment by the Directors at each balance sheet date and in periods where events or changes in circumstances indicate that the carrying value may not be recoverable. Any impairment in the value of fixed assets below depreciated historical cost is charged to the profit and loss account. A reversal of an impairment loss is recognised in the profit and loss account up to the extent that the original loss was recognised.

Onerous lease provisionsOnerous lease provisions are recognised when the Group has a vacant property, a sublet property for which the Group’s lease obligation cannot be met in full or where a restaurant is loss-making for an extended period of time. An estimate is made of the period of time and the extent to which the lease obligations cannot be fulfilled and a provision made accordingly.

Pre-opening costsPre-opening costs, which comprise site operating costs, are expensed as incurred.



31Notes to the financial statements

2 Accounting policies continuedExceptional costsThe Group presents a total net figure, on the face of the profit and loss account, for exceptional items. Exceptional items are material items of profit and cost that, because of the unusual nature and expected infrequency of the events giving rise to them, merit separate presentation to allow an understanding of the Group’s financial performance.

StocksRaw materials and consumables are valued at the lower of cost and net realisable value. Cost is based on the purchase cost on a first-in, first-out basis. The cost for equipment, which includes kitchen equipment, crockery and utensils, is determined by reference to the standard quantity in issue to each restaurant.

Deferred taxationDeferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date which are due to transactions or events which have occurred at that date and which will result in an obligation to pay more, or a right to pay less, tax in the future.

Resultant deferred tax assets are recognised only to the extent that it is considered more likely than not that there will be suitable taxable profits from which the deferred tax assets resulting from the underlying timing differences can be recovered.

Deferred tax is measured on an undiscounted basis at the average 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.

GoodwillGoodwill represents the difference between the fair value of the purchase consideration and the fair value of the separable net assets acquired. Goodwill on the acquisition of a business is capitalised and amortised over its useful economic life. The useful economic life is a maximum of 20 years.

Goodwill is subject to an impairment review at the end of the first full year following an acquisition and at any other time when the Directors believe that an impairment may have occurred. Changes in provision for impairment are taken to the profit and loss account.

Foreign currency transactionsTransactions denominated in foreign currencies are recorded at the spot rate applicable at the date of the transaction. Monetary assets and liabilities expressed in foreign currencies held at the balance sheet date are translated at the closing rate. The resulting exchange gain or loss is dealt with in the profit and loss account.

Operating leasesRentals paid under operating leases are charged to the profit and loss account on a straight line basis over the term of the lease. The benefit of lease incentives are taken to the profit and loss account on a straight line basis over the shorter of the lease term or the period until the first rent review. Contributions received from landlords as an incentive to enter into a lease are treated as deferred income within creditors.

Pension costsContributions to defined contribution personal pension schemes are charged to the profit and loss account in the year in which they become payable.

Cash and liquid resourcesCash, for the purpose of the cash flow statement, comprises cash in hand, cash in transit and deposits repayable on demand, less overdrafts payable on demand.

Liquid resources are defined as current asset investments, given that they are readily convertible into known amounts of cash without curtailing or disrupting the business. Liquid resources comprise term deposits of less than one year (other than cash).

Restricted cash comprises amounts held as letters of credit for potential insurance liabilities.

Preference shares Mandatorily redeemable preference share capital are classified as liabilities, the dividends on these shares are recognised in the income statement as an interest expense.

Debt financeAll borrowings are initially stated at the fair value of consideration received after deduction of issue costs. The issue costs and interest payable on borrowings are charged to the profit and loss account over the term of the borrowing, or over a shorter period where it is more likely than not that the lender will require earlier repayment or where the borrower intends or is required to redeem early.

Rebates receivable from suppliersWhere a rebate agreement with a supplier covers more than one year the rebates are recognised in the financial statements in the period in which they are earned.

Financial instrumentsThe Group does not hold or issue derivative financial instruments for trading purposes.

InvestmentsInvestments are held at cost less any provisions for impairment.

Fixed asset investmentsIn the Group and Company financial statements, investments in subsidiary undertakings are stated at cost plus incidental expenses less any provision for impairment. Impairment reviews are performed by the Directors when there has been an indication of potential impairment.

Company cashflow statementThe Company has taken advantage of the exemption provided by Financial Reporting Standard 1 (revised 1996) not to produce a cash flow statement on the grounds its cash flows are presented within the Group’s cash flow statement.

3 TurnoverBusiness sector analysisThe Group has operated in one business sector in the period, being the sale of food and beverages.

Geographical sector analysisThe Group has operated in one geographical sector in the period, being the United Kingdom.


32


4 Group operating profitGroup operating profit is stated after charging/(crediting):

3 July 2014 to28 June 2015

£m

Shown within cost of sales:Employee costs (note 6) 29.4Depreciation of tangible fixed assets (note 10):– Plant, fixtures, IT equipment and motor vehicles 2.5– Short leasehold properties 2.0Operating lease rentals:– Short leasehold properties 10.1

3 July 2014 to28 June 2015

£m

Shown within administrative expenses: Employee costs (note 6) 3.7Amortisation of goodwill (note 9) 3.3Depreciation of tangible fixed assets (note 10):– Plant, fixtures, IT equipment and motor vehicles 0.2Operating lease rentals:– Short leasehold properties 0.9Rental income (0.8)Auditors’ remuneration:– Statutory audit fees and expenses 0.1– Advisory services 0.2

Notes to the financial statements OverviewContents Business review Governance Financial statements



5 Exceptional costs3 July 2014 to28 June 2015

£m

Exceptional costs– Transaction costs 3.1– Separation costs 1.0– Estate review 0.6Total exceptional costs 4.7

During the period, exceptional costs were incurred as follows: • An arrangement fee of £2.5 million was paid on completion to Bridgepoint Advisors, and professional fees of £0.6 million were incurred in

relation to management advice relating to the acquisition. • Post-acquisition costs of £0.6 million were incurred following the separation from Gondola and separation costs of £0.4 million were incurred

relating to the separation from PizzaExpress.• An estate review following the acquisition of the Azzurri business identified a further £0.6 million of exceptional property related costs.

6 Employees and DirectorsGroup

3 July 2014 to28 June 2015

£m

a) Employee costs:Wages and salaries 30.8Social security costs 2.0Other pension costs 0.3

33.1Disclosed within:Cost of sales 29.4Administrative expenses 3.7

33.1

b) Employee numbers (including Directors)The number of persons employed by the Group during the period was:Restaurants and distribution 5,457Administration 102

5,559


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6 Employees and Directors continuedGroupTotal Directors’ remuneration from the period since acquisition was as follows:

3 July 2014 to28 June 2015

£’000

Aggregate emoluments 824.7

Included within the emoluments above are pension contributions of £22,700 paid into the individual personal pension plans of three Directors.

Emoluments in respect of the highest paid Director were as follows:3 July 2014 to28 June 2015

£’000

Aggregate emoluments 295.5Pension contributions 9.5

305.0 Jason McGibbon and Michael Black, who represent the Bridgepoint Group, received no remuneration from the Group in respect of their services as Directors or in respect of any services to the Group. Bridgepoint Partners LLP were not paid a fee during the period, however £0.1 million was accrued during the period for their services (see note 24), which are subsequently not included in the aggregate emoluments disclosed above.

No Director waived any emoluments in the period.

The Group does not operate a defined benefit pension scheme.

CompanyThe Company has no employees.

7 Net interest payable and similar charges

Note

3 July 2014 to28 June 2015

£m

Interest payable on bank loans and overdraftsBank loans – senior facilities 15 2.6Amortisation of debt issue costs 15 0.4Interest payable on shareholder loans 15 5.2Preference share dividends 15 2.4Interest payable and similar charges 10.6

Interest on shareholder loans and dividends accrued on preference shares roll up into the principal balance annually and does not fall due until the maturity or repayment of the respective loan or preference share capital.




8 Tax on loss on ordinary activities 3 July 2014

to 28 June 2015£m

Current tax United Kingdom corporation taxation –Total current tax charge –

Deferred taxOrigination and reversal of timing differences 0.4Total deferred tax charge (note 16) 0.4

Tax charge on ordinary activities 0.4

The tax charge for the period is higher than the standard rate of corporation tax in the UK of 20.75%. The differences are explained below:

3 July 2014to 28 June 2015

£m

Loss on ordinary activities before taxation (10.2)Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 20.75% (2.1)Effects of:Expenses for tax purposes non-deductible 1.2Timing differences in respect of capital allowances (0.3)Amortisation of goodwill non-deductible 0.7Preference share dividends non-deductible 0.5Total current tax –


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9 Intangible assets Group

Note Goodwill

£mTotal

£m

CostAt 3 July 2014 – –On acquisition 25 157.2 157.2At 28 June 2015 157.2 157.2

Accumulated amortisation:At 3 July 2014 – –Charge for the period 3.3 3.3At 28 June 2015 3.3 3.3

Net book valueAt 3 July 2014 – –At 28 June 2015 153.9 153.9

Goodwill is being amortised over 20 years. The Directors believe that the period is appropriate based on a review of the expected future cash flows of the Group, the fact that the ASK Italian and Zizzi businesses are long standing operations and that the Group continues to have growth opportunities in the long term future.

CompanyThe Company has no intangible assets.




10 Tangible assets Group

Assetsunder

construction£m

Shortleasehold

properties £m

Plant, fixtures,IT equipment

and motorvehicles

£m Total

£m

CostAt 3 July 2015 – – – –Acquisition of subsidiary (see note 25) 1.7 95.5 28.1 125.3Additions 8.3 0.8 1.1 10.2Transfers (7.8) 4.7 3.1 –Disposals – (0.9) (0.5) (1.4)At 28 June 2015 2.2 100.1 31.8 134.1

Accumulated depreciationAt 3 July 2015 – – – –Depreciation charge – 2.0 2.7 4.7Disposals – (0.7) (0.4) (1.1)At 28 June 2015 – 1.3 2.3 3.6

Net book valueAt 3 July 2014 – – – –At 28 June 2015 2.2 98.8 29.5 130.5

There was no capital expenditure contracted but not provided as at 28 June 2015.

CompanyThe Company has no tangible fixed assets.


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11 StocksGroup

28 June 2015

£m

Equipment 5.3Food and drink 1.6

6.9

There is no material difference between the replacement cost and book value of stock.

CompanyThe Company holds no stock.

12 Debtors

Group28 June 2015

£m

Company28 June 2015

£m

Trade debtors 3.8 –Restricted cash 0.2 –Prepayments and accrued income 5.7 –Amounts owed by subsidiary undertakings – 0.1

9.7 0.1

Amounts owed by subsidiary undertakings are interest-free and are repayable on demand.

The restricted cash relates to a £0.2 million letter of credit deposited with Barclays in relation to potential insurance liabilities. The restricted cash does not meet the definition of cash as defined in FRS 1.

All of the debtors stated above are due within one year.




13 Cash at bank and in handGroup

28 June 2015£m

Cash 4.84.8

CompanyThe Company holds no cash.

14 Creditors: amounts falling due within one yearGroup

28 June 2015£m

Trade creditors 5.0Bank loans – senior facility (note 15) 2.3Accrued bank interest 2.2Revolving facility 2.0Taxation and social security 8.6Accruals and deferred income 13.2Other creditors 6.7

40.0

CompanyThe Company has no creditors falling due within one year.


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15 Creditors: amounts falling due after more than one yearGroup

28 June 2015£m

Company28 June 2015

£m

Bank loans – senior facilities 111.5 –Unsecured shareholder loan notes 105.2 –Preference shares 47.5 47.5

264.2 47.5

Senior debtOn 29 November 2014, the Group entered into borrowing arrangements to finance the purchase of Azzurri Central Limited. The loans were syndicated to a range of institutions and carry interest at varying rates above LIBOR (see table below), interest being payable in arrears at time periods of one, three or six months as agreed in advance.

Total issue costs of the senior debt of £6.6 million, are being amortised over the period to the maturity date. At 28 June 2015, the unamortised cost was £6.2 million.

Banking terms and maturity dates The outstanding principal loan amount and the maturity dates of the senior facilities at the year end are summarised in the table below:

Principal loan amount

Weighted average

interest rate above LIBOR

Maturity date

Senior A facility £30.0m 4.25% June 2020Senior B facility £90.0m 4.75% June 2021

The above excludes the committed revolving facility of £10.0 million of which £2.0 million was drawn at year end. There is also an undrawn capex facility of £15.0 million.

Unsecured shareholder loan notes Azzurri Finance 1 Limited, a subsidiary of the Company, has in issue 100,000,000 £1 shareholder loan notes. The maturity date of the loan notes is January 2023. The loan notes accrue interest at a compound rate of 12% per annum.




15 Creditors: amounts falling due after more than one year continuedPreference shares

Group and Company28 June 2015

£

Authorised, Allotted, issued and fully paid:45,175,211 12% Cumulative preference shares of 0.001p each 452

The 12% cumulative preference shares, which do not carry any voting rights, were issued in January 2015 at £1 per share, giving rise to a share premium of £45.1 million. Shareholders are entitled to receive dividends at 12% per annum on the par value of these shares on a cumulative basis; these dividends are compounded annually on 1 January and repayable along with the capital, on 1 January 2023. On winding up, the preference shareholders rank above ordinary shareholders and are entitled to receive £1 per share and any dividends accrued but unpaid in respect of their shares.

Maturity of financial liabilitiesThe maturity profile of the carrying amount of the group’s liabilities as 28 June 2015 was as follows:

Group

Bank debt

£m

Loan notes

£m

Preference shares

£mTotal

£m

Less than one year 4.3 – – 4.3In more than one year but no more than two years 5.3 – – 5.3In more than two years but no more than five years 18.5 – – 18.5In more than five years 94.1 105.2 47.5 246.8

122.0 105.2 47.5 274.7CompanyIn more than five years – – 47.5 47.5

47.5 47.5

Borrowing facilitiesThe Group had a committed revolving facility of £10.0 million, with £8.0 million undrawn at 28 June 2015. The facility is tied to the Senior banking facilities. The facility, if utilised, would carry interest at LIBOR plus 4.25%. The unused facility incurs commitment fees of 1.7%.

The group had an undrawn capex facility of £15.0 million at 28 June 2015. The facility is also tied to the Senior banking facilities. The facility, if utilised, would carry interest at LIBOR plus 4.25%. The unused facility incurs commitment fees of 1.7%.


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16 Provisions for liabilities Deferred taxation

£m

Onerous leases

£m Total

£m

At 3 July 2014 – – –On acquisition (note 25) 6.8 3.5 10.3Utilised in period – (0.2) (0.2)Charged in period 0.4 0.6 1.0At 28 June 2015 7.2 3.9 11.1

Onerous leasesThe onerous lease provision represents operating leases on vacant property, a sublet property for which the Group’s lease obligation cannot be met in full, or where a restaurant is loss making for an extended period of time, until the end of their lease or until the Directors estimate the properties can be sublet.

Deferred taxationAs at 28 June 2015, the Group had no unrecognised deferred tax assets. The deferred tax liability of £7.2 million relates to accelerated capital allowances.

A number of changes continue to the UK Corporation Tax system. The main rate of corporation tax was reduced to 20% from 1 April 2015.

17 InvestmentsDuring the period the Company made an investment in Azzurri Central Limited, refer to note 24 for further information.

Cost and net book value Company

£m

Investment in subsidiariesAt 3 July 2014 –Additions 46.0At 28 June 2015 46.0

The Directors believe the carrying value of the investment is supported by the underlying assets.

A list of the subsidiary companies is provided in note 28.




18 Called up share capital


£

Authorised Equity825,000 Ordinary A shares of £0.01 each 8,250 90,355 Ordinary B shares of £0.01 each 904 68,000 Ordinary C shares of £0.04 each 2,720 11,874 Allotted, issued and fully paid Equity825,000 Ordinary A shares of £0.01 each 8,250 90,355 Ordinary B shares of £0.01 each 904 68,000 Ordinary C shares of £0.04 each 2,720 11,874

• Ordinary A & C shares carry the voting rights and the right to receive notice of meetings and rights to appoint Directors. Ordinary B shares carry none of these rights.

• Preference shares are classified as liabilities (see note 15).


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19 Share premium account


£m

Premium arising on the issue of ordinary share capital (note 18) 1.0 Net increase in share premium account 1.0 Opening share premium account – Closing share premium account 1.0

20 Profit and loss accountGroup £m

At 3 July 2014 –Loss for the financial period (10.6)Foreign exchange 0.1At 28 June 2015 (10.5)

Company £m

At 3 July 2014 –Loss for the financial period (2.4)At 28 June 2015 (2.4)




21 Notes to cash flow statementa) Reconciliation of operating profit to operating cash flows

3 July 2014 to28 June 2015

£m

Continuing operationsOperating profit 0.4Depreciation of tangible fixed assets 4.7Amortisation of goodwill 3.3Decrease in stocks 0.1Decrease in debtors 0.6Decrease in creditors (5.1)Net cash inflow from operating activities 4.0

b) Reconciliation of net cash flow to movement in net debt3 July 2014 to28 June 2015

£m

Increase in cash (note 13) 4.8Bank fees paid 6.2Issue of debt (267.2)Change in net debt resulting from cash flows (256.2)Other non-cash changes (5.6)Net debt at beginning of period –Net debt at end of period (261.8)


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Notes to the financial statements

21 Notes to cash flow statement continuedc) Analysis of changes in net debt

At 3 July 2014

£m

Cashflowmovements

£m

Non cashflowmovements

£m

At 28 June 2015

£m

Cash at bank and in hand – 4.8 – 4.8Bank debt and other borrowings (>1 year) – (256.7) (5.6) (262.3)Bank debt and other borrowings (<1 year) – (4.3) – (4.3)Total net debt – (256.2) (5.6) (261.8)

The figures for restricted cash and cash on short term deposit are included in the figure for cash on the balance sheet.

Other non-cash changes comprise movement in accrued capitalised interest and amortisation of loan issue costs.

22 Operating lease commitmentsThe Group has annual commitments under non-cancellable operating leases which expire as follows:

28 June 2015£m

Land and buildingsWithin one year 0.2In the second to fifth years inclusive 0.7Over five years 25.4

26.3 The financial commitments for operating lease amounts payable as a percentage of turnover have been based on the minimum payment that is required under the terms of the relevant lease. As a result, the amounts charged to the profit and loss account may be different to the financial commitment at the period-end.




23 Contingent liabilities On 29 November 2014, certain of the Company’s subsidiaries (the ‘Original Obligors’) became guarantors to a Senior Facilities Agreement between Azzurri Midco 2 Limited and Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (trading as Rabobank International) London Branch. The facilities were drawn on 21 January 2015 to fund the acquisition of Azzurri Central Limited, at which point, the acquired subsidiaries became ‘Additional Obligors’ to the agreement.

The amounts outstanding at the balance sheet dates for these loans were £124.2 million including accrued interest.

Each Guarantor irrevocably and unconditionally jointly and severally:• guarantees to each Finance Party punctual performance by each other Obligor of all that Obligor’s obligations under the Finance Documents;• undertakes with each Finance Party that whenever another Obligor does not pay any amount when due under or in connection with any Finance

Document, that Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and • agrees with each Finance Party that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal, it will, as an independent

and primary obligation, indemnify that Finance Party immediately on demand against any cost, loss or liability it incurs as a result of an Obligor not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Finance Document on the date when it would have been due.

24 Related party transactionsNo separate disclosure has been made of transactions and balances between companies in the Group that have been eliminated in the preparation of these financial statements, as is permitted by FRS 8 ‘Related Party transactions’. All other transactions and balances with related parties of the Group have been detailed below.

Transactions with BridgepointArrangement fees totalling £2.5 million have been paid to Bridgepoint Partners LLP in relation to the acquisition of the Group (see note 5). Also £0.1 million of monitoring fees due to Bridgepoint Partners LLP were incurred and remain outstanding at the year end date.

Transactions with Bridgepoint portfolio companiesDuring the period, the Group engaged Pepco Services LLP to complete a procurement review exercise. No fees were payable during the period. The group has agreed to pay 20% commission on any cost savings.

During the period, the Group entered into a forward exchange swap contract with TTT MoneyCorp Limited for the following financial year to fund purchases made in Euro.

Azzurri MidCo 1 Limited loan notesOn acquisition of Azzurri Central Limited, the Group introduced the ‘Azzurri Equity Plan’ for eligible employees and Directors. In addition to the principal investment made by and on behalf of the Bridgepoint Funds, certain shareholders and Directors purchased Azzurri Midco 1 Limited loan notes at cost. As detailed in note 15, interest accrues at 12% and is capitalised into the principal on an annual basis.


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25 AcquisitionOn 21 January 2015, the Group acquired the share capital of Azzurri Central Limited for cash consideration of £292.2 million including £81.9 million to fund the settlement of an inter-company loan balance.

The results of the trading company were included within the Group results from this date.

The book values of the assets and liabilities have been taken from the management accounts of Azzurri Central Group on 21 January 2015 (the date of acquisition). There was a fair value adjustment of £0.7 million at the date of acquisition to bring the stock balance in line with the Group policy. Additionally there were fair value adjustments of £1.0 million to increase both debtors and creditors which related to the tax losses transferred from the Gondola Group.

Book value £m

Fair value£m

Tangible fixed assets 125.3 125.3Stocks 7.8 7.1Debtors 9.5 10.5Creditors (39.8) (40.8)Provisions:– Onerous lease (3.5) (3.5)Taxation:– Deferred (6.8) (6.8)Cash 43.9 43.9Net assets acquired 136.4 135.7Goodwill 157.2Consideration 292.9Consideration satisfied by:Cash 292.9




26 Post balance sheet events Following the year end date, on 8 July 2015, Azzurri Central Limited set up CDM Group Limited and its subsidiary CDM Holdco Limited to acquire CDM Trading Limited (formerly Tenfour Ventures Limited), trading as Coco di Mama. The Company purchased a 63.5% share in CDM Group Limited for consideration of £7.4 million. Acquisition costs of £0.4 million were incurred.

27 Ultimate parent undertakingsBridgepoint’s shares in Azzurri Group Limited are held in the name of a nominee company, BEV Nominees Limited, which holds the shares as nominee for the 12 limited partnerships that comprise the Bridgepoint Europe V Fund being Bridgepoint Europe V ‘A1’ LP, Bridgepoint Europe V ‘A2’ LP, Bridgepoint Europe V ‘A4’ LP, Bridgepoint Europe V ‘B1’ LP, Bridgepoint Europe V ‘B2’ LP, Bridgepoint Europe V ‘B3’ LP, Bridgepoint Europe V ‘B4’ LP, Bridgepoint Europe V ‘B5’ LP, Bridgepoint Europe V ‘C’ LP, Bridgepoint Europe V ‘D’ LP, Bridgepoint Europe V ‘E’ LP and Wigmore Street Co-Investments No.1 LP (the ‘Partnerships’). The Partnerships each act by their FCA authorised fund manager, Bridgepoint Advisers Limited.

BEV Nominees Limited’s and Bridgepoint Advisers Limited’s ultimate parent company is Bridgepoint Advisers Group Limited. Accordingly, at 28 June 2015, the Directors consider the Company’s ultimate controlling party to be Bridgepoint Advisers Group Limited.

28 Subsidiary undertakingsThe subsidiary undertakings of the Group for the period ended 28 June 2015 were as follows:

Principal activityCountry of

incorporation

Proportion of ordinary voting

shares held and interest in

allotted capital

Azzurri MidCo 1 Limited (formerly ZASKI MidCo 1 Limited) Holding Company UK 100%Azzurri MidCo 2 Limited (formerly ZASKI MidCo 2 Limited) Holding Company UK 100%Azzurri Trading Limited (formerly ZASKI BidCo Limited) Management Services UK 100%Azzurri Central Limited (formerly Gondola Central Limited) Holding Company UK 100%Azzurri Restaurants Limited (formerly Gondola Restaurants Limited) Restaurant operations UK 100%Azzurri ITS Limited (formerly ITS Restaurants Limited) Dormant Company UK 100%Azzurri MOF Limited (formerly Mean Ole Frisco Limited) Dormant Company UK 100%Azzurri ASK 25 Limited (formerly ASK 25 Limited) Dormant Company UK 100%


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Corporate directory

Directors James Pickworth Stephen Holmes Jason MicGibbonKieran PitcherHarvey SmythMichael Black

Company secretary James Pickworth

Registered officeThird FloorCapital House 25 Chapel Street London NW1 5DH

Company number 09115901

Independent auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory AuditorsThe Portland Building 25 High Street Crawley West Sussex RH10 1BG


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Azzurri Group LimitedThird FloorCapital House 25 Chapel Street London NW1 5DH

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