Strategy of Sfinks Polska S.A. for years 2015-2020

16th November 2015 1

Strategy of Sfinks Polska S.A. for years 2015-2020

(Update November 2015)


Table of contents I. Market characteristics and competitive surrounding of Sfinks Polska. S.A. ........................................ 5

1. Consumer sentiment .................................................................................................................... 5

2. Condition of economy and households ......................................................................................... 6

3. Situation in the trade ................................................................................................................... 6

4. Sale growth/drop factors in years 2009-2014 (1st half) .................................................................. 6

5. Trends in gastronomy ................................................................................................................... 8

6. Development perspectives for the gastronomic market ................................................................ 9

7. Sphinx chain development forecast .............................................................................................. 9

8. Main competitors of Sfinks Polska S.A. ........................................................................................ 10

II. Areas of competitive advantage of Sfinks Polska S.A.......................................................................... 11

III. SWOT analysis of Sfinks Polska S.A. ....................................................................................................... 11

IV. Personnel ................................................................................................................................................. 12

V. Strategic analysis................................................................................................................................... 12

1. Ability to use the market situation ............................................................................................... 12

2. Ability to use the possessed competitive advantages and strengths ............................................. 12

3. Ability to eliminate weaknesses................................................................................................... 12

4. Characteristics of the Company’s financial position ...................................................................... 13

5. Sale and rate of return of the restaurant ...................................................................................... 15

6. Management and overheads ....................................................................................................... 17

7. Marketing activities .................................................................................................................... 17

7.1. SPHINX restaurants ..................................................................................................................... 17

7.1.1. Concept ...................................................................................................................................... 17

7.1.2. Target group ............................................................................................................................... 18

7.1.3. Marketing Mix ............................................................................................................................ 18

7.1.3.1. Product ....................................................................................................................................... 18

7.1.3.2. Place ........................................................................................................................................... 18

7.1.3.3. Processes and Personnel ............................................................................................................. 19

7.1.3.4. Price policy ................................................................................................................................. 19


7.1.3.5. Promotion .................................................................................................................................. 19

7.2. Chłopskie Jadło restaurants ......................................................................................................... 20

7.2.1. Development concept ................................................................................................................. 20

7.2.2. Target group ............................................................................................................................... 20

7.2.3. Marketing Mix ............................................................................................................................ 20

7.2.3.1. Product ....................................................................................................................................... 20

7.2.3.2. Place ........................................................................................................................................... 21

7.2.3.3. Processes and Personnel ............................................................................................................. 21

7.2.3.4. Price policy ................................................................................................................................. 21

7.2.3.5. Promotion .................................................................................................................................. 21

7.3. WOOK restaurants ...................................................................................................................... 21

7.3.1. Concept ...................................................................................................................................... 21

7.3.2. Target group ............................................................................................................................... 22

7.3.3. Marketing Mix ............................................................................................................................ 22

7.3.3.1. Product ....................................................................................................................................... 22

7.3.3.2. Place ........................................................................................................................................... 22

7.3.3.3. Process and Personnel ................................................................................................................. 22

7.3.3.4. Price policy ................................................................................................................................. 23

7.3.3.5. Promotion .................................................................................................................................. 23

8. Development of distribution channels ......................................................................................... 23

9. Subsidiaries................................................................................................................................. 23

VI. Vision, Mission, Values ........................................................................................................................... 23

VII. Strategy for years 2015-2020 .................................................................................................................. 24

1. Strategic goals ............................................................................................................................. 24

1.1. Finances ...................................................................................................................................... 24

1.2. Development and infrastructure .................................................................................................. 24

1.3. Customer .................................................................................................................................... 24

1.4. Management and internal processes ........................................................................................... 25

2. Strategy assumptions .................................................................................................................. 25


2.1. SPHINX restaurants ..................................................................................................................... 25

2.2. Chłopskie Jadło restaurants ......................................................................................................... 25

2.3. WOOK restaurants – THE CHAIN WILL BE LED AND DEVELOPED BY THE DEPENDENT COMPANY SHANGHAI EXPRESS – FOR THE HISTORICAL REASONS PRESENTED HERE BUT NOT INCORPORATED TO THE FORECASTS INCLUDED IN THE PRESENT STRATEGY ........................................................... 25

3. Financial forecast for years 2015-2020 ......................................................................................... 25

5. ADDITIONAL INFORMATION ........................................................................................................ 26


I. MARKET CHARACTERISTICS AND COMPETITIVE SURROUNDING OF SFINKS POLSKA. S.A.

1. CONSUMER SENTIMENT The consumer sentiment indices show the growth of optimism of the Polish households since the beginning of 2013.

The TNS Consumer Index1 value (single-digit synthetic index of Polish consumer optimism) has been growing consistently. In October 2014, the Index reached the value of over 21 pts, in the analogous month in 2013 (-7.7 vs. -29.3), and in October 2015 over 3 pts in relation to October 2014. Looking at the structure of change of the index, we observe an improvement across all age groups, regardless of the education level or nature of employment.

Tab. 1. TNS Consumer Index

10/13 11/13 12/13 10/14 11/14 12/14 10/15

-29.3 -21.6 -24.3 -7.7 -7,6 -6 -4.1

Similar conclusions can be drawn from the indices calculated by the Central Statistical Office (BWUK, WWUK).

The Current Consumer Confidence Indicator2 (BWUK) GUS, synthetically describing the current individual consumption tendencies, increased in October 2015 by 4.7 pts in relation to October 2014 and reached the level of -9.4.

Leading consumer confidence indicator (WWUK) GUS, synthetically describing the individual consumption tendentious expected in the nearest months, reached the level of -15.0 which means an increase by 4.3 per cent in relation October 2014.

The increase of optimism among Polish people is also confirmed by the income forecasts. According to the research by GFK Polonia, Polish people assess their financial situation as growing better.

The results of the income forecasts

1 TNS Consumer Index – informs on the current assessment and forecast of the national economic situation as well as economic situation in the households. The TNS Consumer Index is developed n the basis of five detailed indices obtained within the scope of monthly TNS Polska surveys. The value of the TNS Consumer Index ranges from -100 to 100. The monthly surveys involve a representative sample of Polish residents of N=1000, aged 15 and older.

2 CSO Consumer Confidence Indices – these are the indices created by the Central Statistical Office for the purposes of determination of the economic situation and social expectations regarding the nearest future. They are created based on the monthly consumer condition research in Poland conducted by the CSO. The research aiming at determination of the changes in the financial situation of households and, thus, general economic situation in Poland involves ca. 1700 households.

http://finansopedia.forsal.pl/wiki/G%C5%82%C3%B3wny_Urz%C4%85d_Statystyczny


2. CONDITION OF ECONOMY AND HOUSEHOLDS There has been a significant improvement of perception of the economic situation of the country and households among the Polish consumers.

The components of the TNS Consumer Index, such as the condition of the economy and condition of households, indicate an optimistic assessment of the financial situation of households by the consumers.

In comparison to the analogous period from the previous year, all indices except for the forecast of the state of the households showed a substantial increase. However, the households’ condition forecast got worse in relation to the analogous month in 2013. The worsening of the households’ state forecast might be connected with the election mood, because the research was made before the parliamentary election.

Tab. 3. Economy and household condition assessment index (value in brackets indicates the change of the index value in relation to the previous month)

Economy condition Economy condition – forecast Household condition Household condition –

forecast

October 2015 31 (+14) 1 (+5) 6 (+4) -3 (-6)

October 2014 -17 (+5) -4 (+8) 2 (+4) 3 (+2)

October 2013 - 40 (-6) -28 (-3) -14 (-6) -13 (-4)

It is worth noticing that according to the research of GFK Polonia, despite the improvement in the financial position, the tendency of Polish people to shop remains low, which in the context of worsening of the households’ condition forecast is justifiable.

Polish people’s tendency to shop

3. SITUATION IN THE TRADE Polish people are eating out ever more often. The estimate HoReCa score increased in 2014 by ca. 2% (from 66 230 in 2013 to 67 380 in 2014). Almost all types of establishments noted an increase in the number of units, except for clubs and pubs. The highest increase was noted in the segment of “Top 10 Gastronomic Chains” (which includes the Sphinx restaurant) – increase by 15% (from 2200 in 2013 to 2600 in 2014). The total sale generated by all HoReCa units reaches almost PLN 28.36 billion, which translates into growth of almost 6%.

We can see an increase of the percentage of people using gastronomic services (2013 – 44% / 2014 – 46%/2015 – 56%) The average frequency of use of gastronomic units remains at a level similar to that in the previous year (2014 – 3.1 monthly).

In the group of people visiting restaurants, we have observed an increase in the frequency of visits (2013 – 6.2 / 2014 – 8.2) with slightly decreased receipt per visit (2013 – PLN 74 / 2014 – PLN 70).

4. SALE GROWTH/DROP FACTORS IN YEARS 2009-2014 (1ST HALF)


The situation on the gastronomic market in the discussed period was formed by: crisis, drop of consumer sentiment (including also the group of the best earning and educated consumers), unemployment, lower number of customers in establishments or/and lower expenditures for eating out as well as increase of prices and high competition on the market. As a result of these factors, the turnover in 2011 dropped in over a half (54%) of gastronomic establishments. The sale increased in case of 24% of units, and in case of 22% it remained at an unchanged level3.

Years 2012/2013 were a breakthrough for the gastronomic trade since they brought the first signs of increase from the beginning of the financial crisis and an improvement in the consumer sentiment, thus a greater tendency to make expenditures on gastronomy. The improvement of the economic situation, change in the free time culture and change of relation to food eaten outside the house must be deemed the main increase factors. Among the people who do not use the gastronomic services the barriers connected with excessively high prices are becoming weaker (although, this is still the most frequently specified visiting barrier) as well as the concerns regarding bad taste of food in a restaurant or barriers connected with consumption of meals in overcrowded places such as restaurants. On the other hand, the concerns resulting from uncertainty of the quality of ingredients of meals eaten outside the house and their impact on health are increasing.4

Fig. 1. GFK Polonia, Omnibus 2014, Reasons of not visiting the gastronomic units by the Polish people

[key: It is too expensive; Home-made meals are tastier; Home meals are healthier; I prefer preparing meals with friends/family at home by myself; When I prepare the meals by myself, I know what is in them; I like to prepare the food by myself; I don’t like eating in public places where there is a lot of people; I don’t like spending my time in such a way; There are no interesting restaurants in my area; I don’t have too much free time, I prefer to spend it with my family; I have nobody to go out with; I don’t trust the quality of food served in gastronomic units; other] Along with the increase of market competitiveness and customer awareness, the key elements of selection of the meal place are becoming the food taste (27%) and adjustment to the culinary taste of consumers and craving satisfaction (18%).

3 HoReCa market in Poland 2011, PMR

4 Image of gastronomic chains in Poland 2014, GfK Polonia


5. TRENDS IN GASTRONOMY The selection of trends is always arbitrary to a certain extent. Certain trends may remain in conflict. The consumers are different and they have different needs and preferences. Regardless of the level of cohesion or discrepancy, the trends indicate the development’s directions, allow for a better interpretation of the phenomena in the present time and are helpful while thinking about the brand.

The leading trends currently shaping the needs of the consumers on the gastronomy market are centered around such notions as: ecology, health, increasing consumer awareness and access to information, need to emphasize one’s personality, nostalgia.

• Slow-life – We live slower, our life approach is more reflective and aware. This means: creation of the food celebration atmosphere, quick customer service that should not mean rush, cooking live, possibility of meal preparation by the customers.

• I know what I eat – We are increasingly willing to watch TV programs regarding proper nutrition, we are learning. This means: emphasizing the high quality of used ingredients and products, access to information regarding meal content, nutrients, allergens.

• Health – We make effort to take better care of our health. This means: the products must be promoted as balanced meals, containing diversified ingredients. It is beneficial to inform the customers about the additional advantages resulting from consumption – e.g. energy reserve for the entire morning, supported brain activity, improved concentration. The healthy nature of children dishes is especially worth emphasizing.

• Ecology – Increased interest in the environment and nature. This means: possibility of obtaining of certain ingredients such as vegetables from ecological farms. Own crops, culture outside the city, a vegetable garden.

• Authenticity and reliability – Glorification of locality. This means: emphasizing the role of local suppliers. It is also possible to apply regional products used as additions to the meals. Development of seasonal menu with the use of, for example, spring vegetables or other seasonal vegetable or fruit (in desserts, summer drinks, additions to meat).

• The world at your fingertips – Due to the access to information (Internet, TV) and ease of travel, our will of learning and trying novelties is increasing. This means: it is beneficial to introduce new products inspired by recipes from different parts of the world, for instance by use of limited editions. Intensified relations with culinary bloggers, support of their initiative as well as initiation of own events such as culinary contests in order to create a brand-focused community. It is possible to use recipes provided by the customers on the restaurant website which should have a positive impact on the level of customer loyalty. Cooperation with a culinary-traveler persona.

• Individualization – Need to emphasize one’s personality. This means: adjustment to guests belonging to various age groups (from infants to seniors) and to the particular needs (breakfast, lunch, business, brunch menu). The customers are willing to have an impact on the selection of ingredients in their meals, therefore providing such a possibility in case of dishes is worth considering. This trend can be also reflected in the decoration of the establishments, custom-designed tableware and flexible working hours.

• Comfort – The constant rush results in the possible inability to pursue the slow-life trend by the customers, regardless of other trends. This means: it is beneficial to consider providing the customers with the possibility of quick eating, taking meals out, home delivery. Fast and easy order (Internet, telephone). Apart from this message, the


fact that the products are balanced, of high quality and can be a fully valuable meal and not only a snack is also worth emphasizing.

6. DEVELOPMENT PERSPECTIVES FOR THE GASTRONOMIC MARKET The analysis of trends and development directions present on the western markets allows to assume that the development of gastronomy in the incoming years will be shaped by: • Sustainable development – The post-crisis pragmatism of consumers results in tendency to approaches

supporting social responsibility, ecology, cost efficiency, and ethics in marketing. This means: providing the possibility to purchase food from the restaurant, cafe and food shops that would be thrown away at the end of the day.

• Brand transparency – The brands face the task of rebuilding consumer trust and clear, transparent and fair communication. This means: building trustworthiness and quality of meals and ingredients, access to information on the content, process of storage and preparation.

• Dialogue with the customers – Impact of the community on the products and brands – resignation from the mainstream for the purpose of increased communication with homogeneous groups of consumers or individual consumers. This means: development of social and loyalty programs.

• New regionalism – Consumers’ search for diversity and cultural relations. This means: in a restaurant this can be connected with the fusion cuisine dishes, “non-western” dishes.

• Food dialogue – Hybrid food that offers diverse taste experience in a single product or replacement of traditional meal ingredients with less typical components, for example a burger with noodles instead of a bread roll. This means: use of traditional ingredients in a non-standard manner, e.g. tea as a meal ingredient.

7. SPHINX CHAIN’S DEVELOPMENT FORECAST Despite the dynamic development and changes taking place on the gastronomic service market in Poland in the recent years, the level of use of the said services is still low in comparison to the EU states (the analysis of the statistical data indicated that the average Polish family spends ca. 3% of their income for eating out, a family in Bulgaria – 8%, in the Czech Republic – 7%5). As projected by the experts, the demand for eating outside the house in Poland will increase. The main factors having an impact on the positive forecast regarding the development of gastronomic services include the improvement of the economic situation in the country, social-cultural and demographic changes. In terms of further development, the element connected with greater availability of gastronomic units offering services meeting the customer expectations is also of great importance.

As shown by the demand modeling research regarding the particular brands, in the cities, the population of which exceeds 100 thousand residents, there is a place for further development of the Sphinx chain**6. The research included estimation of two types of market shares for the brands operating in Poland. The share of the brands, with the current size of the particular chains and with their current availability for the customers, and the hypothetical share assuming that the customers can use the brands they want to, without limitations connected with the lack of the given brand in the customer’s surrounding.

5 www.foodservice-index.com/statistics 6 research conducted by means of Cawi method, n=600, cities 100 thousand+

http://www.foodservice-index.com/statistics


The share of the Sphinx brand in 2014, with 79 establishments existing in the cities with over 100 thousand residents, out of 92 possessed establishments, reached the level of 3.2% of the entire market of consumption outside the house. The hypothetical demand for Sphinx in the situation of full location availability for the consumers increases to the level of 6.3%. This result means that there is a place for an increase of the chain (number of establishments) by ca. 70 new establishments in the cities, the population of which exceeds 100 thousand residents.

As shown by the results of the Sphinx restaurant, meeting such additional conditions as: number of tourists, income of the society or distance from a big city, the Company may also additionally develop its chain in certain cities with under 100 thousand residents with success.

8. MAIN COMPETITORS OF SFINKS POLSKA S.A. According to the most recent research carried out for Sfinks Polska S.A. by IQS in November 2015, the main competitors in the restaurant segment are the local restaurants and pizzerias not belonging to any chain. In the past three years, a lack of dynamic development of the competitive restaurant chains could have been observed. Currently, Sphinx (92) and Chłopskie Jadło (10) are two largest restaurant chains. The main barrier for development of the competitive chains are the excessive costs of establishment of restaurants and, in case of growth, the need to incur additional marketing and management costs. • The biggest pizza restaurant chains are: Da Grasso, TelePizza, Biesiadowo, Dominium and Pizza Hut.

In the past two years there was no significant increase noted in terms of the largest pizza restaurant chains. According to the aforementioned research by IQS, the biggest competitors are the local pizza restaurants not belonging to any chain.

• Quick service restaurants (QSR) – McDonald’s, KFC, Subway, North Fish

In the last years, this was the fastest growing segment, after cafes, despite the clear change of consumers’ attitude towards this type of restaurants. The main barrier for their development will be the decreasing growth of the number of customers due to the change of eating habits. According to the research by IQS, the biggest competitors in this segment are McDonald’s and KFC.

• Foreign companies managing restaurants and planning to enter/entering the Polish market (Block House, Mezzo di Pasta, etc.).

The main barriers for the entry on the market in the incoming years, even for the global players, are: The time needed to reach the scale economy and related costs, The purchasing power and habits of the customers, The high costs of promotion due to the Polish people’s low knowledge of foreign restaurant

brands other than fast food restaurants.

• Commercial networks Popularization of home cooking. Promotion of home cooking conducted by supermarkets. Parallel to the growing trend of home cooking or cooking with friends, the “eating out” trend is noticeable. The main purpose of visits in restaurants is socialization. Taking the above aspects into account as well as the growing purchasing power of the society, it must be assumed that this trend will be limited and it will not pose a threat for the development of the restaurant.

• Suppliers In most areas, the negotiation power of the suppliers is limited by the market competition.

• Customers The negotiation power of customers is limited due to the retail nature of the services.


II. AREAS OF COMPETITIVE ADVANTAGE OF SFINKS POLSKA S.A.

1. Focus on the casual dining restaurant chain • The largest restaurant chain of this type in Poland, • The largest restaurant chain of this type in Poland under one brand (Sphinx).

2. The strongest brand in the casual dining segment (Sphinx) and the strongest Polish gastronomic

brand.

3. Great diversity of the offer and developed offer change management methods.

4. Scale of operation and connected conditions of purchase of resources, utilities, materials and

devices.

5. Personnel – in the Polish market there is a very limited number of people possessing knowledge and experience regarding restaurant chain management. In principle, the only places of staff recruitment are Sfinks Polska S.A., big hotel chains and AmRest.

III. SWOT ANALYSIS OF SFINKS POLSKA S.A.

Tab. 4. SWOT analysis

Strengths Weaknesses

1. Strong and recognizable Sphinx brand 2. Developed Sphinx restaurant chain 3. Results of the company which enable dynamic

growth of the chain 4. Commenced works on the new IT system 5. Obtaining of scale effects – lowering of

purchase costs with maintenance of proper quality

6. High customer loyalty 7. High customer satisfaction with the service

received for the paid price, continuous growth of assessment of the customers visiting the restaurants

8. Number of customers using the services 9. Efficient and skillful management of the offer

for the customers 10. Managerial staff

1. Foregoing focus on the Sphinx brand – no development of the Chłopskie Jadło and WOOK brands

2. Small scale of activity in the Chłopskie Jadło and WOOK restaurants

3. Different level of training of the restaurant staff

4. Lack of an integrated IT system 5. Little share of the owned real estates (2) in the

relation to the real estates rented for restaurant purposes

Opportunities

Threats

1. GDP increase 2. Increasing purchasing power of the

customers 3. Increasing demand for good quality services 4. Change of habits of the customers and

increased frequency of visits in the restaurants

5. Increasing consumer optimism 6. Unemployment drop 7. Low interest rates on credits and deposits 8. Polish zloty (PLN) strengthening

1. Recession and increase of pessimism among consumers

2. Increase in unemployment 3. Adverse taxation changes 4. Increase of credit costs 5. Polish zloty’s (PLN) devaluation 6. Increase of rent and real estate prices 7. Dynamic entry of the foreign competition 8. Increased interest in cheap fast food offers

or home cooking


9. Decrease of rent and real estate prices

IV. PERSONNEL

As of 31 October 2015, there were 99 people employed in the central unit of Sfinks Polska, including: 1. 55% of employed people have worked for four years or more and comprises the key staff of the

company. 2. 77% of the employed people have higher education, 23% have secondary education. 3. The employment structure in the particular areas is as follows:

• Support of the sale chain and development - 50 people • Accounting and finances - 27 people • Organization, administration and investments - 16 people • HR and others - 6 people

The company has stable key staff at its disposal, possessing experience in management of restaurant chains, continuously increasing their professional qualifications.

V. STRATEGIC ANALYSIS

1. ABILITY TO USE THE MARKET SITUATION According to the market characteristics, it is possible to state that within the incoming 5 years the gastronomic market will be covered by a growth trend. Concurrently, the low interest rates and rent or purchaser market in terms of the real estate market substantially improves the competitive possibilities of Sfinks Polska S.A. The position on the market, current perception of the Company by the contractors, previous experiences and activities of the Company allow the Company to obtain attractive premises, use trends as well as build customer loyalty in connection with the ability to introduce novelties and increase of quality of the provided services.

2. ABILITY TO USE THE POSSESSED COMPETITIVE ADVANTAGES AND STRENGTHS Covering the possessed competitive advantages by one general statement, it is possible to say that the general competitive advantage is the possession of the Sphinx restaurant chain. Focus on the Sphinx brand allows the use of all the strengths of the Company, especially the scale effect, building of proper margin level and the use of the intellectual potential of the employees.

3. ABILITY TO ELIMINATE WEAKNESSES The Company has undertaken actions in order to eliminate its weaknesses. The good sales results of Chłopskie Jadło restaurant (the increase of sales after the three quarters of 2015 on the level of 12.9%), improvement of the formula and the fact that the customers prefer Polish cuisine (71% – IQS November 2015) justify the development of the restaurant chain under this brand. The WOOK restaurants as well, despite the decrease of sales after the three quarters of 2015 caused mainly by nonrecurring factors, show the positive development potential. The researches carried out by IQS indicate that the customers of the SPHINX restaurant more often prefer Chinese cuisine restaurants than the customers in general (48%/28%). Since among the SPHINX restaurant’s customers a few visits at other restaurants on average occur per one visit at the SPHINX restaurant, there is a big growth potential for the chain of WOOK restaurants. Meanwhile, the WOOK restaurants have a big potential for the development in the franchise system because of the lower than in the case of SPHINX and Chłopskie Jadło investment costs, which are the main barrier for potential franchisees.


In connection with the closure of financial reorganization of the Company, despite the further concentration on the development of the SPHINX restaurant, the Company has the facility for the development of the Chłopskie Jadło and WOOK restaurant chains. One of the most important strategic actions is the development of proper tools allowing for increase of management effectiveness. In 2014 the Company approved the IT tools development plan that will allow the significant improvement of management effectiveness in the incoming years. The Company systematically organizes training courses and builds tools that enable the employees of all restaurants to achieve a high level of training within the established strategy.

4. CHARACTERISTICS OF THE COMPANY’S FINANCIAL POSITION

The basic source of income of the Company is the income from the gastronomic activity that, in annual perspective, has for several years been characterized by systematic y/y increase for the Capital Group. These incomes are characterized by seasonality, which is characteristic for the entire restaurant trade in Poland. Seasonality results mainly from the weather conditions and related changing number of tables in the restaurants as well as lower number of days of sales in the winter months. The highest incomes are earned in the 3rd quarter, the lowest – in the 1st quarter. The Company limits the impact of income seasonality by means of balanced selection of restaurant locations. Analyzing the gastronomic income, one must note that in stand-alone approach, they are characterized by dynamic growth for the past several quarters which results from multiple changes in the ownership structure of the restaurants performed by the Company (mainly by means of transformation of the franchise restaurants into own restaurants). The sales and marketing bonuses from the suppliers is another significant item in the Company’s income. They reach the level of over PLN 4.0 million and are directly dependent on the level of the gastronomic sales of the Company. Analyzing the cost side, one must note the significant improvement of effectiveness of operation of the restaurant chain that occurred in the recent quarters. The following elements had an impact on improvement of effectiveness:

• Price policy. The Company was successful in introducing changes in price management.

There are various price lists used in the restaurants, depending on the location, age group and offer type which allow for better adjustment of the offer to the various customer segments and, thus, for obtaining the proper sales volume with maintenance of the assumed profit from sales.

• Introduction of the operator model

All own restaurants operate in the operator model where the income level of a restaurateur depends on the sales and EBITDA result of the restaurant. These costs reach the total level of ca. 22% of sales.

• Limitation of other costs

Other costs include utilities (electricity, water, gas, heating/air conditioning), chemical agents, telecommunication services, bank services, redecoration, etc. This entire cost group reaches the level of ca. 11% (COO% index) in relation to incomes. In the recent quarters the Company conducted many actions aiming at limitation of this cost category, including: covering the purchase of chemical agents with central purchases, inclusion of electric energy purchase in the group purchases, renegotiation of contracts and rationalization of costs connected with music played in the restaurants as well as decreasing commission costs related to debit card payments.


As a result of the above actions, EBITDA of the restaurant chain reaches in certain months the level of over 20% of comes, thus, over 30% in the best establishments. The overheads, covering the central unit and marketing costs, reach in total the level of ca. PLN 21 million annually. Tab. 6. Unconsolidated profit and loss account of Sfinks Polska S.A. (in thousand PLN)

2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 Profits from sales 38 823 40 212 43 481 42 924 42 711 41 526 46 052 Own cost of sales -33 028 -34 079 -35 272 -34 208 -34 215 -35 300 -38 857 Gross profit from sales 5 795 6 133 8 209 8 716 8 496 6 226 7 195 Overheads -5 020 -5 320 -5 023 -5 624 -5 354 -5 137 -5 945 Other operating revenues 308 628 279 12 141 1 286 1 688 2 920 Other operating costs -143 -500 -854 -725 -217 -277 -1 612 Profit on operating activity 940 941 2 611 14 508 4 211 2 500 2 558 Financial revenues 78 111 124 293 71 36 110 Financial costs -1 051 -998 -1 026 -403 -998 -689 -710 Gross profit (loss) -33 54 1 709 14 398 3 284 1 847 1 958 Income tax 0 0 0 18 499 -2 178 -6 -605 Net profit (loss) -33 54 1 709 32 897 1 106 1 841 1 353 EBITDA 3 208 3 073 4 741 4 093 6 253 4 635 4 961

Despite the systematic improvement of results from sales, at the end of the third quarter 2015 the Company was perceived negatively by the market that is reflected by the low capitalization (ca. PLN 96 million). The main reason for this situation was the balance sheet situation, in particular:

• negative equities resulting from high losses noted in the previous years, • high level of liabilities, especially liabilities arising from incurred credits at the level of PLN 95

million, i.e. credits/EBITDA at the level of ca. 8, • no perspectives for dividend pay-out.

Tab. 7. Main balance sheet items of Sfinks Polska S.A. (in thousand PLN)

Spec. Spec. Spec.

Spec. Spec. Spec. Spec.

Q1’2014 Q2’2014 Q3’2014 Q4’2014 Q1’2015 Q2’2015 Q3’2015 Fixed assets 41 797 49 041 50 452 79 363 77 316 81 399 84 430 Current assets 21 663 15 831 15 458 19 421 19 844 23 487 23757 TOTAL ASSETS 63 460 65 772 65 910 98 784 97 160 104 886 108 187 Equity -50 328 -49 963 -47 938 -14 745 -13 496 -11 511 -10 012 Liabilities and provisions for liabilities 113 788 115 735 113 848 113 529 110 656 116 397 118 199 TOTAL LIABILITIES 63 460 65 772 65 910 98 784 97 160 104 886 108 187

The Company generates increasing cash flows from the operating activity that are currently the basic source of investment activity (development of the restaurant chain) as well as the source of means for the payment of liabilities.

Tab. 8. Cash flow of Sfinks Polska S.A. (in thousand PLN)

Spec. Spec. Spec. Spec. Spec. Spec. Spec.

Q1’2014 Q2’2014 Q3’2014 Q4’2014 Q1’2015 Q2’2015 Q3’2015 Operating 4 365 2 064 4 506 2 613 2 002 4 104 8 581 Investment -6 779 -1 440 -3 667 -258 -1 999 -2 178 -5 201 Financial -617 -811 -720 -731 -2 405 -2 221 -2173 Total -3 031 -187 119 1 624 -2 402 -295 1 207 Closing cash flow balance 4 701 4 514 4 633 6 257 3 855 3 560 4 766


The verified and repeatable business model of the restaurant, in conjunction with the conducive surrounding conditions such as: availability of attractive locations for acceptable costs as well as low interest rates result in the crucial nature of the incoming months in terms of building of the restaurant chain. On the other hand, the limited cash flows from the operating activity encumbered with payment of the debt limited the investment possibilities of the Company, and the balance sheet situation presented above affected the possibility of relatively easy obtaining of additional financial means for the further development under attractive conditions. With accordance to the above, the Company has undertaken many activities to enable financing of the chain's development. Obtaining the refinancing of the foregoing credits based on the credit received from BOŚ S.A. is going to be the most significant outcome of these activities. The relief of 100% of the interests from the present debt will result in the reduction of the Company’s credit liabilities of over PLN 10 million. Additionally, the obtained 7 years repayment period with the repayment rates matching the pace of the chain’s development set up in the strategy means that the Company will no longer need additional financing beyond the planned recapitalization of PLN 12 million for the execution of the chain’s development established in the strategy.

The financial position of the Company will improve, although the perspective of the incoming years requires further intensive work over the development of the basic activity. The following elements will have an impact on the perception of the Company: • Understanding and acceptance of the Company’s strategy, aiming at safe development, improvement

of results and balance sheet of the Company, • Rate of growth and quality of new locations, • Effects of pro-sale activities and the realization of the forecasts.

5. SALE AND RATE OF RETURN OF THE RESTAURANT

The establishments operating under the Sphinx brand generate 90% of the turnover and are concurrently the most profitable and repeatable brand in the Company’s portfolio

Fig. 2. Gastronomic sale structure within a 9-months period in 2015

The restaurants under the Sphinx brand are operated based on the operator and franchise system, and the restaurants Chłopskie Jadło and WOOK, due to their small numbers at the moment, only in the operator system. In the operator system the investment outlays are incurred by the Company and in the franchise system – by the franchisee.

The profitability of the franchise restaurants for the Company reaches the level of ca. 10% of revenues. The operator restaurants generate higher rate of return, however the investment risk remains with the Company.

Tab. 9. Current rate of return of the operator restaurant chains of Sphinx:

Sales 100.0% COS 29.1%


COL 22.2% COR 18.3% COO 10.7% EBITDA 19.7%

• COS – costs of foodstuffs materials

The foodstuffs materials account for the largest cost item in the restaurant’s cost structure. The Company has developed effective methods of assessment of the sale potential of the location, allowing for diversification of the sale prices of products for the particular establishments. As a result, the restaurant’s foodstuffs cost to revenues ratio is improved. • COL – personal costs

Currently, all restaurants, for which the investment outlays are incurred by the Company, operate in the operator model where the share of personal costs in relation to the revenues reaches the level of 22%, efficiently binding the effectiveness of restaurant operation with the restaurant owner’s profit. Further maintenance of this ratio will depend on the effective management of the pay pressure and professional skills. • COR – rent costs

Rents plus, in case of shopping centers, common costs of the center and marketing payments for the benefit of the letting party are calculated for most locations as the minimal rate or as a percentage value of the turnover, depending on which of the amounts is higher.

This index reaches the level of ca. 18% of the turnover value. The level of this index in the incoming years will depend on the effectiveness in renewal of expiring lease contracts which used to be concluded in less advantageous conditions in the past than currently accepted by the Company. In the case of about half of the establishments, the rents are calculated as a euro equivalent.

• COO – other operating costs

Beside the aforementioned costs in this group, the expenses of minor redecoration of the restaurants are also presented.

• EBITDA

Fig. 3. The chart presented below shows the improvement of the EBITDA result for the Sphinx restaurant obtained by the Company in the period of 2010-2015:


[key: EBITDA of Sphinx restaurant from 2010; PLN million/month; Gastronomic sales; EBITDA Restaurant Gastronomic sales]

The EBITDA result of the restaurant after the three quarters of 2015 reaches currently the level of ca. 20% of revenues and differs depending on the quarter and the redecoration expenses. Further improvement of the EBITDA result will depend on the effect of such actions as:

• obtaining new customers and launching new sales channels, • better use of the premises’ area, • effective assessment management, • consistent finalization of the lease conditions’ reorganization and effective renewal of expiring lease

contracts on the rules set up by the Company for the new locations. • effective management of the cost pressure (remuneration, costs of foodstuffs materials, costs of

utilities).

6. MANAGEMENT AND OVERHEADS The value of the overheads has been systematically rationalized. In the nearest periods, the control of rationality of incurred costs in relation to the assumed development plans is projected to be maintained. Along with the increase of sale in the incoming years, the percentage relation of overheads to the value of consolidated net sale should decrease systematically in the comparable periods.

The costs of promotion and advertising should remain within the range of 1%-3% of the consolidated net sales value.

The Company undertook multiple actions connected with improvement of management quality for the present time and for the future, including regular improvement of processes and tools, continuation of the commencement of works over implementation of the balanced scorecard (BSC), as well as systematic organization and broadening of the trainings.

7. MARKETING ACTIVITIES

7.1. SPHINX RESTAURANTS

7.1.1. CONCEPT The Sphinx brand is the strongest restaurant brand in Poland in the casual dining segment with waiter service. It is a strong brand characterized by high customer recognition (spontaneous awareness 36%, supported awareness 87%)7. This results to a great extent from the 20-years long presence on the market and its deep penetration by the widespread establishment network, diversified offer, as well as an appropriate price to value ratio in relation to the provided services.

The tasks and challenges the brand will face in the incoming years include: • creation of the brand image as offering high quality services, • creation of the creative brand image, reliable and open to new trends, • obtaining new groups of customers from the premium aspiring segment, • consolidation of the Sphinx restaurant image as a place friendly to young people and people young at

heart as well as to families with children, • creation of the Sphinx restaurant image as a place for business meetings,

• maintenance of the high positive emotional level in the customers' relation towards the brand 7 Data by GFK Polonia, 2014


7.1.2. TARGET GROUP The customers of Sphinx are usually young people (aged 25-39), with secondary and higher education with average income. These are both single people as well as people with stable family situation. The expansion of the target group with the age segment covering 40-45 years old people is becoming clear.

The Sphinx brand, by means of diversified product offer in its menu, is able to meet the expectations of customers from several segments. As it results from the research, the current customers of Sphinx are loyal (51% according to the research of March 2015 are truly loyal people) and they assess the service quality positively (from 88% to 96% of customers are satisfied or very satisfied with the particular elements of the offer). However, there is a significant negative difference in the assessment of the offer by the customers who used the services of the Sphinx restaurant in the past. The activities within the scope of the strategy will aim at:

• keeping the current customers and increasing their visiting frequency, • regaining the former customers and convincing them to the quality of services and offer, • obtaining new, wealthier customers among those who do not know the brand.

7.1.3. MARKETING MIX

7.1.3.1. PRODUCT The leading trends currently shaping the needs of the consumers on the gastronomy market are centered on such notions as: ecology, health, increasing consumer awareness and expectations, individualization and openness to the world. The changing nutrition trends within the scope of search for new flavors and culinary experiences as well as increasing demands within the scope of product quality require the brand to undertake actions adequate to the current trends and expectations. Taking the analysis of the above factors into account, Sphinx meets the expectations of the current customers by means of the diversified basic menu and the on-going works regarding increasing of attractiveness of the offer. The basic product offer for the customers is presented in the main menu. This menu contains various propositions of dishes where customers can find something for themselves. The cores of the offer are 2 main pillars – shawarma and steaks. Whereas, the supplementary menu was designed taking into account such factors as:

• day time (breakfast menu and lunch menu), • location specificity (dessert menu, alcohol menu), • circumstances of the visit and customer (menu for children and menu for students).

Maintenance of the above offer concept allows for optimal use of the potential of the particular location.

There were 8 limited-time “NOVELTY” supplementary menus proposed for the main menu within the framework of menu management in 2015. A significant share of novelties in the total sale results in the maintenance and improvement of this form in the incoming years. “NOVELTY” is a particularly attractive offer for the regulars who expect changes and novelties. They also function as a test for the price and attractiveness of the dish prior to the introduction to the main offer.

7.1.3.2. PLACE In the Sphinx restaurants opened in 2014 and 2015, a new format of the restaurant has been introduced, covering the new aesthetic and functional concept, providing the comfort of stay for various types customers. The style and colors of the new format still relate to the characteristics of the Orient brand, it was, however, supplemented with new elements compliant with the current trends in interior design. The scope of the new interior arrangement includes, among other things: colorful oriental kilims on the walls in the forms of pictures, walls with plants and a new bar design.


In the new functional concept, the zone for families with children and a safe play corner should be given recognition. The new restaurant format allows also separation of the customer room for a business meeting and special event meetings.

Concurrently, a part of the restaurants still requires renovation or refreshing, including providing the possibility of use of modern IT solutions by the customers, restaurant owners and central unit. In the refreshed and renovated establishments in 2015 the arrangements from the new format have been applied.

7.1.3.3. PROCESSES AND PERSONNEL The Sphinx restaurants have identified and described key processes in place. The works on the new

software allowing for more effective process management and control of the effects at each key stage have also been commenced. Along with the IT development, the Company will systematically audit and verify the processes in order to improve the effectiveness of operation.

At the end of 2014, the Company has implemented, among other things, the loyalty project “Agenci Q” (Q Agents), the additional task of which is determination of the level of services provided by the chain as well as assessment of the customer satisfaction level.

The program “professional carrier routes” for the employees of the restaurant was developed in 2014 for the purpose of improving the service quality and effectiveness. Implementation of the program has been commenced in January 2015.

7.1.3.4. PRICE POLICY The Company’s policy regarding the price management is based on the detailed analysis of the factors connected with the economic parameters of the product and marketing mechanisms, such as: • location-related conditions and the segment of the customer using the services of the given

restaurant, • product production cost (COS), • analysis of competitiveness on the local and national market, • psychology-related conditions of price perception, • mark-up characteristics of the products and popularity (demand), translating into product profitability

and, thus, BCG matrix.

Within the scope of price policy management, there can be noticed a systematic growth of margin on sales with concurrent providing of attractiveness and high quality of the product offer.

Regardless of the analysis of the external and internal factors, the Company conducts the research regarding the Customer price sensitivity (PSM).

An additional tool used for testing the customer price sensitivity is constituted by “Novelties” that are not included in the menu. The assessment of popularity and mark-up characteristics of the new dishes allows making decisions related to introduction of the dish in the main offer.

The analysis of the above factors allows the adjustment of the level of the price offer for the given location. The restaurants have menus in several price versions in place, which allows for flexible price optimization in the chain. The above solution allows also for a quick reaction to the on-going changes.

7.1.3.5. PROMOTION Within the scope of activities supporting sales management, apart from product and price

management, the Company undertakes a broad range of marketing and promotion activities in relation to the chain. Work on product is a broad area and it covers, apart from the improvement of attractiveness of the offer of served dishes, the decor of the restaurant, its atmosphere or customer service standard – therefore, everything that the customer should remember after they leave the restaurant and what will make him return to it. Thus, the precisely developed menu, marketing communication, promotion activities that are clear and attractive for the customer, employee training system as well as the quality control


system are all essential elements having an impact on the growth of sales and building the image of the restaurant chain the customers are willing to return to.

7.2. CHŁOPSKIE JADŁO RESTAURANTS

7.2.1. DEVELOPMENT CONCEPT Chłopskie Jadło is the most popular and oldest Polish restaurant chain offering Polish cuisine dishes.

The Chłopskie Jadło brand has been present on the market for 20 years. Currently, the Chłopskie Jadło chain includes the operation of 10 restaurants. The high supported recognition of the brand at the level of 64%, according to the SMG KRC 2012 report, reflects the potential of the brand. The restaurants are perceived as places offering good traditional Polish cuisine dishes. Concurrently, these are restaurants perceived as places for wealthy people, tourists and families. Although they are typical casual dining segment restaurants, the customers perceive them rather as premium restaurants.

The challenges the brand will face in the incoming years are, first and foremost: • Differentiation of the brand from the competitive restaurants – roadside “local inns”, departure from

the association with fat, stodgy, unhealthy food • Departure from association with food that is easy to prepare at home • Attraction of “educated urbanities” profile customer • Maintenance of the informal atmosphere, experience of feeling “at home”, with the maintenance of

prices higher than in the “Sphinx” restaurants. The main aims of Chłopskie Jadło will be:

• Working out a final – coherent, unique atmosphere having and clearly differing from other Polish cuisine restaurant chains – concept of the Chłopskie Jadło restaurants.

• Achieving the average effectiveness of restaurants, i.e. (rent + margin)/(revenues from sales) of no less than 35%.

• Extending the chain to the minimum of 20 places within 4 years.

7.2.2. TARGET GROUP The customers of Chłopskie Jadło are usually ”middle-aged” people (aged 25 – 39) and older (aged 40-

50). These are married people. They are usually educated and professionally active people employed on white-collar positions as well as in commerce and services. The financial position of the customers of Chłopskie Jadło is average or good. These are people who go to the cinema and use the Internet with average frequency. For the tourism and city restaurants, foreign tourists and families with children having weekend meetings constitute an important group of customers. For the restaurants located in the shopping centers and, additionally, close to office buildings, the “white-collars” – office workers, well educated, wealthy – constitute an important group, as well as the middle-aged people who visit Chłopskie Jadło for sociability purposes. The third format of the restaurant, the so-called roadside type, has customers who are travelers visiting for a quick, healthy and already tried meal. The broad acceptance of the Polish cuisine by various groups of customers entails a challenge regarding the decision on the final form and identity of the Chłopskie Jadło chain.


7.2.3.1. PRODUCT

Chłopskie Jadło, due to the combination of tradition and modernity, can attract a broad range of customers – from foreign tourists, through families, to young, educated and professionally active people. In order better meet the customers’ expectations, the offer is planned to be adjusted to the location type.

Concurrently, according to the market trends, the offer will include regional products from Polish suppliers as well as traditional, slightly forgotten, products. The offer will also be partially changed, depending on the season (Novelties). The origin of the products will be emphasized more strongly in


communication. This will give the customers an impression of authenticity and uniqueness and will allow distinguishing the brand among the restaurants with traditional Polish cuisine.

An important criterion in offer management in the Chłopskie Jadło restaurants is the specificity and segment of the customer characteristic for the given restaurant. Taking the above into account, the structure of the offer is based on the main menu as the main starting point for the further sale opportunity. The supplementary and seasonal menus fulfill a similar role as in the Sphinx restaurants.

In the selected Chłopskie Jadło restaurants, there is also a regional menu that contains dishes characteristic for the given region. The above action aims at convincing the customer on attachment to the tradition of the given region.

7.2.3.2. PLACE

In the location area, the chain is faced with the challenge of improvement of the restaurant image and its designation. In 2015, a new arrangement format was prepared and introduced. It aimed at improving the comfort (comfortable sofas), esthetics, atmosphere and functionality of the premises (business zone, new children corners, separate event rooms) and at giving the perspective of being different from Polish cuisine restaurant chains.

7.2.3.3. PROCESSES AND PERSONNEL

In order to maintain and improve the quality of provided services, the implementation of uniform standards for the entire network and trainings for the employees working in the room for customers and kitchen (central, regional and restaurant-specific training with the use of materials prepared centrally) was continued.

The IT projects and the loyalty program “Agenci Q” (Q Agents) implemented by the Company also cover the Chłopskie Jadło restaurants.

7.2.3.4. PRICE POLICY

Similarly to the Sphinx brand, the price policy is based on the analysis of economic factors and marketing mechanisms. Chłopskie Jadło is still positioned closer to the premium segment, thus the maintenance of price at the current level is planned.

The chain, according to the planned diversification of the menu offer adjusted to the location type, has also several price versions of the menu in place. The restaurant owner makes the decision on the price list selection.

7.2.3.5. PROMOTION

The marketing activities aiming at obtaining the assumed goals for the Chłopskie Jadło chain are strictly connected with the planned diversification of location in terms of the target customer segment. In 2015, the promotion of the Chłopskie Jadło restaurant was based mainly on local promotion, which is more effective in relation to the size of the chain. In addition, the Chłopskie Jadło restaurants were promoted in the SPHINX magazine published by the Company every two weeks and on the Internet.

7.3. WOOK RESTAURANTS – THE CHAIN WILL BE LED AND DEVELOPED BY THE DEPENDENT COMPANY, SHANGHAI EXPRESS – FOR THE HISTORICAL REASONS PRESENTED HERE BUT NOT INCORPORATED IN THE FORECASTS INCLUDED IN THE PRESENT STRATEGY

7.3.1. CONCEPT WOOK, according to the previous concept, are restaurants offering Asian cuisine and full waiter service. They were designed to be similar to the Sphinx restaurant, but with a different cuisine type. Their specificity was characterized by serving dishes in single bowls. From a time perspective, this concept has many limitations. The research showed discrepancies in the perception of the restaurant offer by the customers. The concept of the bowls received acceptance, however the inadequate price related to the costs of


running the restaurant were not acceptable. In 2013 it seemed that this concept is difficult to repeat at a larger scale. However, in 2015 it is clear that the concept of sale in the bowls and on the plates giving the customer the freedom of creating their own dishes gives the adequate result, resulting in the efficiency (rent + margin)/(revenues from sales) of the WOOK restaurant getting closer to the average efficiency of the SPHINX restaurant.

The company successfully performed tests of the “delivery” service. Due to the positive receipt of that service’s tests by the customers, the restaurants’ offer will be extended by home deliveries and “take away”. Based on the current tests, this distribution channel provided 8-12% of the sales.

At the same time, a size and arrangement concept was developed, considering the restaurants as small (200-250 square meters) with warm atmosphere and the customers being able to see their meals being prepared.

7.3.2. TARGET GROUP The target customer group of the WOOK restaurant has very similar characteristics to the target group of the Sphinx restaurant. The crucial difference is the wealth of customers. The customers of the WOOK restaurant declare higher income than the customers of the Sphinx restaurant. As much as 48% of the SPHINX restaurant's customers mention Chinese cuisine among their cuisine preferences.


7.3.3.1. PRODUCT

Due to the past association of the WOOK restaurant by the customers mostly with Chinese dishes, a limited interest in the proposed offer can be noticed. In 2014 there has been no noticeable positive change in the sale upon supplementation of the menu with other Asian cuisine dishes. However, in 2015 we can notice the positive changes in the way the offer is perceived by the customers.

In October 2014, one of the WOOK restaurants started the “all you can eat” offer tests. For two days at the beginning of each week there were ca. 100 dishes offered from 6 countries with significant share of the Asian cuisine. The offer received great interest, generating an increase in sales by ca. 100% in October and November in relation to the average sales on the same months in the previous quarter. The tests were continued in 2015 in order to refine the offer in terms of production and control processes as well as the return rate of the concept. The tests will end in December 2015. The researches on the feelings and expectations of the customers and the results of the sales with the lack of external advertising at the same time already allow to make a positive evaluation of the tests. Considering the expected development of the WOOK restaurant chain in its existing traditional form and the need to acquire larger premises than those the tests were run in for the “all you can eat” concept, further works on its introduction will be performed under a different brand name.

7.3.3.2. PLACE

The WOOK restaurant is a place with atmosphere accepted and liked by the customers. Concurrently, the customers pointed out the discord between the exclusive appearance of the interior and the low prices. In one of the restaurants a design change has been introduced by adding the elements of design brightening the interior, which made it less formal and in line with the current trends. It has been assessed in a positive way by the customers and will become the base for the change in the WOOK chain’s design.

7.3.3.3. PROCESS AND PERSONNEL

Due to the low scale of operation and products specific for the Asian cuisine, the central purchase of products was not fully introduced in the WOOK restaurants. It was also difficult to implement fully uniform standards and principles of personnel training and work. On the other hand, the WOOK restaurants use the same tools and resources of the central unit as the Sphinx and Chłopskie Jadło restaurants. In 2015 a bigger group of products was included in the central purchase.


All the restaurants were transferred to a subsidiary, Shanghai Express, and the chain will be developed within the framework of that structure. Managing the chain, until the appropriate scale is achieved, will be performed within the resources of Sfinks Polska S.A., based on a management agreement. Such solution significantly lowers the costs of managing due to the cost sharing, as well as provides staff with proper knowledge and experience.

7.3.3.4. PRICE POLICY

Similarly to the brands of Sphinx the Chłopskie Jadło, the price policy is based on the analysis of economic factors and marketing mechanisms.

The supplementary menus will be introduced also in these restaurants, fulfilling the same role as in the case of the SPHINX restaurant.

7.3.3.5. PROMOTION

The promotion activities of the WOOK restaurant consisted mainly in the website, leaflets and, in case of 2 restaurants, proximity of the Sphinx restaurants.

8. DEVELOPMENT OF DISTRIBUTION CHANNELS In 2014 the Company worked on the following areas: • Principles of decision making regarding new locations, which were successfully launched in the

assessment of locations for all types of the owned restaurants. The Company initiated works on launching more precise location assessment system with the use of tools for geolocation. The planned implementation: in 2016.

• Cooperation with banks regarding franchise restaurant development funding – temporal resignation from continuation of works due to the small participation of this type of restaurants in the chain of Sfinks Polska S.A. The works will be reinitiated in the case of obtaining or development of the chain with a bigger share of franchisees e.g. pizzerias.

• Creation of list of locations for the purpose of operator restaurant chain development for year 2015 and partially for the subsequent years – the Company has negotiated the terms for locations in the amount providing the planned development in 2016.

• Cooperation with regard to of B2B sale. • Working out a framework for own e-commerce platform, • Cooperation within the scope of catering and gastronomy sale during mass events, • Possibility of future acquisition of restaurants or gastronomic chains. In 2015 the Company led

advanced negotiations aiming at acquisition of the Da Grasso pizzeria chain. The Company continuously monitors the market in Poland and does not exclude acquisition.

9. SUBSIDIARIES Sfinks Polska S.A. has subsidiaries (100% of shares): • Shanghai Express Sp. z o.o. – owner of the WOOK brand • W-Z.PL Sp. z o.o. – subsidiary of Shanghai Express; rights to the lease contract for single premises in

Poznań where the WOOK restaurant is located • SPV.REST1 Sp. z o.o. – the company conducts the utility premises management; • SPV.REST3 Sp. z o.o. – the company conducts consulting for the benefit of Sfinks Polska S.A. within

the scope of IT tools development • SPV.REST2 Sp. z o. o. – has not undertaken any activity yet • Sfinks Deutschland GmbH in liquidation

VI. VISION, MISSION, VALUES

MISSION


The customer is important for us. We build long-lasting relations, provide professional service, exceptional atmosphere and diversity of culinary experiences.

VISION

Leadership on the casual dining restaurant market, managing the biggest chains of the most recognizable brands on this market. Obtaining position of an expert in restaurant chain management.

VALUES • Creativity and originality – we search for new ideas and concepts with passion, we create our own

solutions.

• Openness – we treat changes as a continuous opportunity for development.

• Diversity – we respect different cultures, experiences, outlooks and views, which allows us to create products and solutions meeting the expectations of our customers.

• Reliability – we operate and work in a fair manner, responsibly and reliably, continuously building trust of our partners and customers, we follow the principles of social responsibility in business.

• Professionalism – we raise the qualifications and improve the technologies with full commitment.

VII. STRATEGY FOR YEARS 2015-2020

1. STRATEGIC GOALS

1.1. FINANCES • In the case of investments, the Company will reach EBITDA from restaurants at the level of at least

20% and EBITDA from franchise restaurants at the level of 7%. • Obtaining and maintenance of the Debt/EBITDA ratio not exceeding 3.5. • Allocation of own assets for investments guaranteeing ROI at the minimal level of 30%. • Obtaining in perspective of 2020 overheads at the level not exceeding 8% of the turnover.

1.2. DEVELOPMENT AND INFRASTRUCTURE • At least doubling the sales in Poland by 2020.

• Mainly the development of the Sphinx restaurants based on the operator and franchise models.

• Implementation of the master franchise concept for the Sphinx restaurant and setting up restaurants in at least 3 countries.

• Safe development of the Chłopskie Jadło and WOOK restaurants, allowing obtaining the status of the second and third restaurants (after Sphinx) by the said chains in the casual dining segment.

• Acquisition of a chain with highly recognizable brand from the fast casual dining, pizza restaurant or cafe segment.

• Implementation of IT tools allowing to obtain a competitive advantage by means of increase in quality and rapidity of collection of management information and allowing proper support of master franchise development.

1.3. CUSTOMER • Maintenance of customer satisfaction (very satisfied and satisfied) from the rendered services in

each of their elements at the level not lower than 90%.

• Obtaining the highest customer loyalty index on the market.

• Obtaining the highest conversion indices in the restaurant and pizza restaurant segment in Poland.


1.4. MANAGEMENT AND INTERNAL PROCESSES • Development and implementation of the employee training and assessment system in order to

obtain productivity allowing to reach average remuneration at the level of double the national average with maintenance of the assumed percentage ratio of overheads and sale value at the level not exceeding 8%.

• Implementation of the balanced scorecard (BSC) for the purpose of precise measurement of strategy implementation effects as well as support for strategic decisions.

2. STRATEGY ASSUMPTIONS • Focus on development of the Sphinx restaurant with the ROI at a level not lower than 30% and,

additionally, increase through franchise and master franchise sale.

• Development of the restaurant chains of Chłopskie Jadło and WOOK at the level enabling at least doubling the size of this chain.

• Search for opportunities of take-over allowing for use of the organizational potential of the Company and transfer of possessed competences for the purpose of extending the asset portfolio and obtaining profits resulting from the scale effects.

• Building own customer database at the level of at least 2 million records allowing the diversification of services.

The historical conditions, resources and tools possessed by the Company as well as the market situation result in the Company’s need to focus on the most effective use of the possessed means in the nearest years for investments in strategic assets, finding assets allowing it to build its growth in a manner safe for the company, assets that are not strategic assets at this time as well as building tools and competences supporting the implementation of the strategy and providing a competitive advantage in the future.

In order to implement the assumptions and objectives of the strategy, it must be assumed that: 2.1. SPHINX RESTAURANTS Are the main objectives of investments. The presumed possible obtainable ROI results in the possibility to maintain the dynamics of development of the Sphinx restaurant in the incoming years at the designed level. Concurrently, in all cases it is possible to realize EBITDA of the restaurant at the level not lower than 20%. Concurrently, the Sphinx brand entails the potential of international development and will be the main asset providing possibility of further development of the chain outside the borders of Poland.

2.2. CHŁOPSKIE JADŁO RESTAURANTS The Company intends to extend the Chłopskie Jadło chain to the minimum of 20 owned restaurants within the next 5 years based on its own resources. The company does not exclude the possibility of bigger chain’s enlargement in the case of confirmation of the adequate profitability of the new restaurants and obtaining additional financing of the investment.

2.3. WOOK RESTAURANTS – THE CHAIN WILL BE LED AND DEVELOPED BY THE SUBSIDIARY – SHANGHAI EXPRESS – FOR THE HISTORICAL REASONS PRESENTED HERE BUT NOT INCORPORATED TO THE FORECASTS INCLUDED IN THE PRESENT STRATEGY

Sfinks Polska holds 100% shares in Shanghai Express Sp. z o.o. that is the owner of the WOOK brand and concurrently manages 4 WOOK restaurants. The SE Company presumes the development of the own WOOK restaurants’ chain of the minimum 1 per year based on its own resources. It is also possible to extend the number of new restaurants in the case of confirmation of the adequate profitability, repeatability of the restaurants and, as a result, obtaining additional financing sources for the investments or obtaining franchisees.

3. FINANCIAL FORECAST FOR YEARS 2015-2020


Due to the difficulties with estimation of the probability of an event occurrence, the forecast does not take into account the effects of:

• development of restaurants in the franchise and master franchise system • acquisition of other chains and the development of the WOOK restaurant • development of e-commerce and catering sale • the possible releasing of a write-off for the Chłopskie Jadło trademark

The financial forecast takes into consideration the effect of single-time events resulting from the past, such as:

• signing the annexes with the banks PKO BP and ING, and the complete repayment in these banks • financing of the development of the credit obtained from BOS S.A.

The forecast for years 2015-2020:

4. RISKS

The values and indices presented in the forecasts are the expected levels, provided that all assumptions are met and they are subject to various risks that could change them significantly in the case of occurrence. The potential threats to the strategy’s performance are specified in the SWOT analysis. Concurrently, all risks described in section 33 of the report entitled “Consolidated abridged interim financial statements for the period between 1 January 2014 and 30 September 2015 from the financial year between 1 January 2014 and 30 November 2015” published on 16 November 2015 may have an influence on the implementation of this strategy and they must be taken into consideration in the case of the presented company’s strategy.

Additionally, it must be noted that as at the date of the publication of this strategy, the Company has a credit promise received from BOŚ S.A. However, there is a risk of not concluding the final agreement that may result in the failure to perform the provisions of the annexes to the credit agreements with ING Bank Śląski S.A and PKO BP S.A.

5. ADDITIONAL INFORMATION Due to the lack, at the time of the publication of this strategy, other particular investment goals

(acquisition of another restaurant chain, purchase of real estate for restaurant activity), the Company publishes forecasts regarding only the unit result. Because the Company’s intent is the further fast development, exceeding the one included herein, and the long-term stabilization of the economic situation of the Company without further increase of capitals, the Company undertook the following actions:

a) creation of structures allowing the purchase of real Estate for restaurant purposes. Currently the Company conducts talks with investment funds and has set up a limited partnership (spółka komandytowa – SK), the goal of which is obtaining financing for the purchase of real Estate in which it is a limited partner with the right to 90% of the generated profit and without the right to manage the limited partnership. It also does not assume the risk related to the SK over the limited partner’s contribution. The goal of the Company is to achieve a 20% ratio of owned real estate to the whole chain.

Dane jednostkowe w mln zł2015 2016 2017 2018 2019 2020

Przychody ze sprzedaży 175,9 219,2 265,9 308,9 340,5 367,6Zysk (strata) netto 8,1 15,0 15,5 18,9 21,6 24,9EBITDA 20,1 27,2 37,8 44,6 49,6 54,2

Kapitały własne 6,0 23,1 39,5 58,4 80,1 105,0Dług/EBITDA 4,5 3,0 1,8 1,3 0,9 0,5


b) searching for a restaurant chain to purchase. Sfinks Polska S.A., it the presented strategy, assumes

maintaining the Debt/EBIDTA ratio at the level of 3.5. At the same time, it the presented forecasts, due to the current lack of investment goals and maintaining the Debt/EBIDTA ratio at 3.5, the company may possess free funds for investments in the amount indicated in the table below.

Acquisition of a chain may be performed for the following purposes:

• creating a second, besides Sphinx restaurants, strategic chain – in the event of a strong brand, big scope or an entity with a potential to develop in the field of Italian cuisine.

• acquisition (purchase or recapitalization) of foreign companies in order to build a master franchise chain.

• development or restructuring for the purpose of reselling with an appropriate return rate. The possessed and systematically improved skills in management create an opportunity of generating additional profits.

2016 2017 2018 2019 2020 Debt / EBITDA 3.5 3.5 3.5 3.5 3.5 Potential funds for investments (in PLN million) 22 64 100 143 191

Strategy of Sfinks Polska S.A. for years 2015-2020

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Transcript of Strategy of Sfinks Polska S.A. for years 2015-2020