annual report 2016 - azzurri group · business review governance financial statements ... fast...

- Annual Report 2016 -

Overview

Business reviewGovernance

Financial statements

Azzurri Group Limited Annual Report and Accounts 2016

ContentsThe Azzurri Group is a market leader in the Italian casual dining sector, operating ASK Italian, Zizzi and Coco di Mama. The Group employs nearly 6,000 people, serving over 15 million meals a year in our growing estate of over 260 restaurants and shops.

Azzurri’s core brands ASK Italian and Zizzi 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. Brand reviews are included on pages 6 to 13. In April, the Group opened its first international site, opening its first Zizzi in the Republic of Ireland in Dundrum. Further details are included within the Zizzi review on pages 10 to 13.

Early during the period under review, the Azzurri Group further strengthened its estate 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 15.

www.zizzi.co.uk

Overview02 2016 highlights03 Azzurri’s brands04 Azzurri’s strategy05 Chairman’s statement

Business review06 ASK Italian10 Zizzi14 Coco di Mama16 Financial review

Governance18 Board of Directors 19 Strategic report21 Directors’ report24 Corporate governance report26 Independent auditors’ report

Financial statements28 Consolidated profit and loss account29 Consolidated statement

of comprehensive income30 Consolidated balance sheet31 Company balance sheet32 Consolidated statement of changes in equity33 Company statement of changes in equity34 Consolidated cash flow statement35 Notes to the financial statements67 Corporate directory

www.askitalian.co.uk www.cocodimama.co.uk

1

http://www.cocodimama.co.uk

http://www.zizzi.co.uk

http://www.askitalian.co.uk


2016 highlights

Financial summary

£233.7m Total sales +7.3% year on year growth

£35.0m Adjusted EBITDA+6.4% growth

£22.2m Capital investment (including premiums)+£3.9m growth

£32.1m Operating cashflow+£7.8m growth

Business highlights

Acquisition of Coco di Mama

20 New openings

Republic of Ireland First international Zizzi opened in Dundrum

27 Transformations and refurbishments

Overview



2

Overview




Azzurri’s brands

We take our passion for simple, delicious Italian food and add a constant stream of fresh inspiration to make each dish individual and special.We combine this with our love of art and design to create restaurants with personality and depth of character not seen in any other restaurant chains.

Everything we do here – from classic dishes to show stopping signatures, warm service to quintessentially Italian interiors – is so that you can enjoy eating together as much as the Italians do.

At Coco di Mama, everything we do is focused on you.We concentrate on simple, flavoursome and delightful dishes, combined with great service – we’re confident you won’t find such value anywhere else.

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

Restaurants 145New this year 11Employees 3,400Average spend per head £19To read more about Zizzi restaurants please go to pages 10-13

Shops 11New this year 5Employees 120Average spend per head £4To read more about Coco di Mama shops please go to pages 14-15

Overview



3


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 frequency of visit

• 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

Azzurri’s strategy

Overview



4

Overview




Chairman’s statement

The last 12 months have seen further significant progress on all fronts for the Azzurri Group. Like-for-like revenue growth, new openings and EBITDA growth in our core brands, Zizzi and ASK Italian, have been complemented by the acquisition of the growing fast casual brand, Coco di Mama in July last year and by our very first overseas site, Zizzi, opening in Dundrum, Republic of Ireland, in April.

Against a market backdrop of sharp increases in new restaurant openings, Azzurri has successfully continued to grow. This has been achieved through the strength of our brands, further investment in our restaurants and people, and innovation in our menus. Our partnership with Deliveroo, which started in June 2015, has enabled us to reach customers through the growing home delivery market.

Since the majority acquisition of Coco di Mama, we have worked with the Founders to develop one of the most exciting up-and-coming brands in the grab-and-go sector. The business has doubled in size during Azzurri’s ownership with ambitious plans to continue that journey. None of this could have been achieved without the dedicated leadership of the Founders, who have remained with the business, and who have managed to preserve Coco di Mama’s unique culture while at the same time embarking on a period of such ambitious growth.

Including our first site in the Republic of Ireland, this year Azzurri opened 11 new Zizzi sites and 4 new ASK Italian restaurants, alongside 5 new Coco di Mama stores.

“ We have resilient businesses and strong brands, which, together with the capability and dedication of our teams, leave us well positioned for the future.”

The versatility of Zizzi’s brand has enabled it to open a third location in Cardiff and a fourth in Manchester, while also securing Azzurri’s first site in Westfield London. ASK Italian, with a site at The O2, secured its first opening in London since 2003 as well as openings in Taunton, Newcastle and Harrogate.

A cornerstone of the success of ASK Italian and Zizzi over recent years has been continued reinvestment in sites and the evolution of the brand and proposition. 27 restaurants were refurbished during the year, meaning that every site in the estate has received investment within the last 6 years. Both Zizzi and ASK Italian evolved their designs further this year, launching a new look-and-feel with outstanding results.

We will continue to invest in new and existing sites across all of our brands in the coming year. Additionally, we are developing plans to launch an additional restaurant brand, from start-up, in the next few months. “Radio Alice” is planned to open in November 2016 – a high quality, fast casual pizzeria, which will further strengthen our portfolio of businesses.

It has been another year of huge progress for Azzurri and its component businesses. Looking forward, the referendum result has created uncertainty in the economy, although this has not impacted our performance to date. We have resilient businesses and strong brands, which, together with the capability and dedication of our teams, leave us well positioned for the future.

Harvey SmythChairman

Overview



5


6

112Restaurants

4New openings

www.askitalian.co.uk

Overview





7O

verviewBusiness review

GovernanceFinancial statem

ents

A transformed estate and a stronger brandThis year was another highly successful year for the ASK Italian brand and saw the completion of our major repositioning programme that commenced in 2010. Our estate now fully reflects this modernised design, and the latest refurbishments continue to deliver the same excellent returns.

Building on the success of our prior year new openings in high profile sites such as Manchester and Edinburgh, we opened a further 4 new restaurants all in similarly prime locations.

Our look has continued to evolve and we have enhanced our design giving us the confidence to commence a new programme of major transformations that will replicate the key food, service and design elements and fuel our future growth.

Continued development and investment in our food, people and service has resulted in further positive movement.

We have been more successful than ever at engaging with our customers through focused promotions and campaigns. Through the use of sophisticated segmentation and targeted marketing, combined with our continued focus on restaurant basics and strong operational controls, we were able to deliver another strong year of profit growth.

Growing the estateWith an additional 4 new openings, we now have 112 ASK Italian restaurants trading across the UK. Our latest new restaurants have introduced the ASK Italian brand in previously unrepresented locations. We opened in the Metrocentre shopping centre in Gateshead, the exciting entertainment destination of The O2 Arena in London, and the busy towns of Taunton and Harrogate.

This year also saw the transformation of 11 restaurants and marks the end of the transformation programme, leaving the estate fully invested and aligned in a fresh, contemporary Italian aesthetic.

In May, we launched the latest evolution of the ASK Italian brand at our Gloucester Arcade site. This latest store builds on the original repositioning, has a blend of warm Mediterranean colours and timeless Italian design alongside an elevation of our food offer and more personalised level of service. It has delivered further excellent performance results.

We have also extended our reach to customers through a successful partnership with Deliveroo. With all ASK Italian sites already offering a take away service, half our estate now offers Deliveroo, which provides significant revenues to the restaurants. We plan to extend the Deliveroo partnership in line with their own geographical growth, whilst also refining our in-house take away offer.

Italian food to remember Our menu innovation continues to be driven by our passion for authentic Italian food made with the finest quality ingredients, and influenced by the knowledge of our expert friends, including acclaimed chef Theo Randall and Italy expert Carla Capalbo.

With our menu of outstanding classic Italian dishes firmly established, food development in the year was focused on developing distinctive, tempting and memorable dishes to engage our customers.

A focus on starters and desserts as a way to create interest, excitement and showcase our great ingredients led to the creation of our ‘Fiery Bread Sticks’ served with n’duja butter and our premium ‘Garlic Bread Speciale’. The highlight of the menu was our premium ‘Chocolate Etna’ – with the theatre at table of pouring hot toffee sauce over a chocolate dome to reveal a scoop of hidden gelato making it an instant hit and our top selling dessert.

Our passion for continual improvement also led to a broader children’s menu with new healthy sides and a reinvigorated dessert offering. ‘Tip and Top Ice Cream’ and ‘Chocolate Pizza’ both enable kids to build their own desserts, which has delighted them, and set the menu apart.

This year we were proud to be awarded the Gold Mumsnet Family Friendly Award for our restaurant family offer and also a Great Taste Award for our ‘Pistachio and Olive Oil Cake’.

Other menu highlights were the introduction in February of a new crowd pleasing Calzone range and the introduction of a permanent range of Cocktails – with our ‘Italian Twinkle’ becoming a firm favourite alongside our ‘Elderflower Gin and Tonic’.

“ The highlight of the menu was our premium ‘Chocolate Etna’ – with the theatre at table of pouring hot toffee sauce over a chocolate dome to reveal a scoop of hidden gelato making it an instant hit and our top selling dessert.”

Overview




8

2Awards

11Transformations

www.askitalian.co.uk

Overview





9O



ents

Reaching customersThis year, our main marketing campaign ‘Temptation’ grew national awareness by capitalising on the trend of social footage, creating short films and working with a leading psychologist to demonstrate how different personality types react to temptation. We used short animations in our email communication to show off the excitement and theatre of the melting chocolate cup. A new dessert menu format, featuring tempting photography, and comprehensive staff training combined to drive significant local coverage and strong social media interaction.

Our Summer campaign was also very successful with its filmed taste trials of our new kids menu ensuring engaging, sharable social footage and a strong blogger interest.

Record serviceService has again improved over the year with rising scores across internal measures and public sites.

We have continued to shape our unique service proposition, and as well as becoming famous for friendly and welcoming service, it is now focused more on the consistency of our customer experience.

We were proud to have a record number of compliments received in the year, combined with our Trip Advisor score at its highest position ever – reflecting the seriousness we put into delivering great service and food.

Investing in our team We continue to invest in our ASK Italian Journey – the training framework for all of our staff. This bespoke programme, providing consistent and high quality training for all roles, to further drive internal succession, now stands at a record high.

We completed our fifth restaurant manager leadership programme which again provided succession for key roles in our new openings and in the Operations field team. To support recruitment we introduced our new Applicant Tracking System, which has enabled us to provide an improved service to all applicants, whilst extending the reach and impact of our recruitment campaigns.

At the core of our ASK Italian Journey sits our unique Italian Education programme, which provides inspiration for our team members on the seasons, ingredients and culture of Italy. Our teams reflect this inspiration in our Primo Competitions where this year we crowned Megan our Primo Waiter and George our Primo Chef, both from our Cardiff team.

In a year of rising cost pressures for the sector, we have successfully navigated the National Living Wage, ending the year with an engaged and committed team at all levels.

Making a differenceWe continued in our mission to beat our £1 million fundraising goal in support of Great Ormond Street Hospital Children’s Charity (GOSHCC), having reached over £850,000.

This year we hosted a second ASK Triathlon to support GOSHCC which was well supported by our teams alongside our suppliers and partners. Entertainment was provided by the popular celebrity Louie Spence, whilst we were grateful to also have a GOSHCC family in attendance on the day itself.

We have also continued to raise money through our annual Giant Easter Egg raffles and through the Pennies donation option offered to customers when paying their bill.

Future growthASK Italian continues to become stronger and more profitable. The completion of our estate transformation, continued improvement in our customer scores, and the unveiling of our new look and feel all demonstrate the strength of our brand.

Our transformed estate and our exciting pipeline of premium new sites set us up for further future success.

We are looking forward to a year where we will begin the next phase of estate transformations, evolve the brand and expand our business into new locations and opportunities.

“ This year we were proud to be awarded the Gold Mumsnet Family Friendly Award for our restaurant family offer and also a Great Taste Award for our ‘Pistachio and Olive Oil Cake’.”

Overview




10O



ents

144Restaurants acRoss the uk

1restaurant in

Republic of Ireland

www.zizzi.co.uk

http://zizzi.co.uk


11O



ents

Overview



“ Our new enhanced design style with a striking new ‘ZiZZi in lights’ lOgO is delivering strOngest ever results.”

Dynamic, leading Italian brandIn the last year we have continued to build on the strong momentum of the previous year. We have further enhanced the strength of the brand whilst accelerating our rollout programme. We opened 11 new restaurants including expanding our geographical reach by opening our first in the Republic of Ireland. Our existing restaurants performed well delivering like-for-like revenue growth and another year of profit growth for the business as a whole.

This achievement has been underpinned by a continued investment and focus on our proposition, maintaining our relevance in a competitive marketplace and a drive to deliver the very best customer experience. We have continued to evolve our design and the refurbishment of our estate to ensure we remain fresh and interesting.

We have relentless focus on menu innovation to drive interest and appeal to the latest food trends and we launched a ‘customer first’ service proposition that empowers our teams to provide a memorable customer experience. Impactful digital marketing campaigns keep customers engaged and help keep Zizzi top of mind.

Accelerated pace of new openings and refurbishmentsThe strength of the Zizzi brand has given us the confidence to increase our programme of new openings with 10 new restaurants in the UK this year. The brand has proven itself to have broad appeal, giving us the ability to open multiple sites in key cities. This year we opened a third Zizzi in Cardiff and a fourth in Manchester.

Staying fresh and relevant in such a competitive market is crucial and as such, despite having a fully invested estate, we have continued to evolve our design and continued our strong pace of refurbishments this year. 16 restaurants now support this new enhanced design style which brings a striking new exterior look featuring a ‘Zizzi in lights’ logo and warmer, more interesting interiors. These latest design restaurants are delivering outstanding results.

In addition, in April we opened our first Zizzi internationally in the Republic of Ireland in Dundrum. It is performing very strongly and, given its ability to be instantly successful in new markets, demonstrates the strength of the Zizzi brand.

Zizzi food – inspired to be individualThe dedicated Zizzi food team is focused on seeking inspiration to bring new exciting dishes and drinks to the market. In March we were the first high street chain to launch new vegan/non diary pizzas using vegan cheese that created significant buzz and support from the growing vegan community.

Not only does Zizzi serve great Italian favourites but we also add dishes with our unique Zizzi twist. This year we introduced new handmade ‘Pulled Beef Arancini’, a premium ‘Rustica Pizza Carnoso’ with truffle salami, wild boar prosciutto and crispy sage, and also innovation on our drinks range. Our new range of ‘Pimp Your Prosecco’ and cocktails have been very well received.

We have broadened our reach by developing a range of dishes that can be eaten in the home and partnered with Deliveroo to offer a home delivery service. This additional proposition gives us access to the fast growing premium food delivery market.


12O



ents

11new openings

16refurbishments

www.zizzi.co.uk

http://zizzi.co.uk


13O



ents

Overview



Sustained brand buildingZizzi has delivered a step up in awareness and consideration this year behind increased investment and innovation in marketing. We were awarded ‘Best Marketing Campaign’ by the Casual Dining Awards for our #ZizziTacklesCancer campaign. This campaign saw us leverage the media interest in the Rugby World Cup to drive awareness of Zizzi and secure donations for Cancer Research UK. We teamed up with rugby stars Jonny May and Alex Corbisiero and took our customer engagement to a new level using gamification to combine online, mobile, social and in-restaurant experiences across all of our restaurants.

We were the first restaurant group in the UK to use gamification as a way of generating interest and enhancing our engagement with customers by offering fun digital games with a chance to win prizes.

We have also seen success in building our social followers and engagement on social platforms behind our very successful ambassador programme and strength of content.

Building a customer first cultureA strong and recognised customer service reputation is crucial in a very competitive market and this year we have seen a big improvement in customer experience as seen in our annual brand tracking survey and on online sites such as TripAdvisor.

At the start of the year we launched our new service proposition which is based on building a culture of customer centricity and empowering our teams to always put the customer first. We invested in building the capability of our teams to ensure they understand and execute the basics brilliantly and are then focused on treating each customer as an individual to create a friendly and welcoming experience.

Standing up for our communityOur charity partner is Cancer Research UK and we have committed to raising £1 million over 3 years. To date we have raised in excess of £500,000 through the #ZizziTacklesCancer campaign in September 2016, and our first national fundraising team building event. Open to every Zizzi employee and based on the increasingly popular ‘Tough Mudder’ style events, ours, called the ‘Zizzi Mudder’, attracted over 300 team members who took part to raise money for the campaign.

Looking aheadZizzi is in excellent shape with all brand metrics and experience measures showing sustained improvement. We aim to maintain our dynamic approach in the year ahead with continued investment in new openings, increasing rate of refurbishments and driving cut-through marketing campaigns.

The strength of the Zizzi brand gives us confidence that, despite any potential headwinds that may arise post Brexit, we are well positioned to continue to extend our reach and grow all elements of the business in the year ahead.

“ we were pleased tO be awarded ‘best marketing campaign’ by the casual dining awards fOr Our #ZiZZitacklescancer campaign.”


14O



ents

11Shops

5New openings

www.cocodimama.co.uk

http://www.cocodimama.co.uk


15O



ents

Overview



“ Coco di Mama has doubled in size and transformed its operations, whilst retaining and refining its unique culture and personality.”

Coco and the Azzurri GroupEarly this year, Coco di Mama was acquired by the Azzurri Group. As a rising star in London’s Quick Service Restaurants (“QSR”) sector, Coco di Mama is seen as an exciting addition to the Group.

Coco di Mama is a good fit for Azzurri. It gives the group access to the fast growing fast casual grab-and-go market and offers quality Italian food, a product we know well. As part of a larger group we have been able to unlock synergies and accelerate our growth plans.

Indeed, the first 12 months have yielded amazing results – Coco di Mama has doubled in size and transformed its operations, whilst retaining and refining its unique culture and personality.

Rapid growthCoco di Mama has seen rapid growth this year, opening 5 new stores in prime locations. As well as 3 sites in the traditional Coco di Mama heartland of the City, we have reached further afield with 2 sites outside; in Victoria and on the South Bank. These sites have performed incredibly well and built confidence in our ability to trade successfully across a number of different customer profiles and location types. Each new site has opened more strongly than the last as the brand gains strength and awareness. The openings at Bankside and Victoria were record openings for us, and our most recent site, in Bow Lane, likewise. All openings have served to push on the brand and its look and feel as Coco di Mama seeks to be ever more distinctive and differentiated.

It has been a strong year of profit growth for the existing estate. We delivered solid growth throughout the year as both the key products of pasta and coffee volumes continued to increase.

Through a combination of scale benefits, collective bargaining and operational improvements, Coco di Mama’s margins have been transformed whilst maintaining and improving quality and team remuneration.

Developing our propositionIn a fast growing and rapidly changing QSR market the need to keep improving and evolving the proposition is crucial, even for a new growth business.

We have always been famous for the quality of our coffee and our ability to serve it fast. This year we have added additional machines to enable us to keep up with growing demand yet still focus on hand-crafting each coffee.

We continued to develop and drive volume growth in a number of our core products including our pasta with improved sauces and exciting specials. In Spring, we overhauled our range of cold grab-and-go products with a new range of salads, wraps and focaccias.

June saw the launch of our breakfast proposition. Leveraging our unique cooking platform we have been able to develop a range of premium and quality breakfast items that can all be served personalised and as quickly as our pasta. The range includes a number of soft poached egg dishes from healthy to indulgent as well as a range of porridge. All are served with our signature Coco di Mama finishing flourish.

With each new opening we have continued to develop our store design and further build on and strengthen our brand communication. Our most recent stores have more striking signage, a stronger visual appeal and warmer, more classic Italian interiors.

Our peopleWe have always prided ourselves on the quality of our service and the efficiency and friendliness of our teams. We recognise that our people and culture are critical to our success, and we invest heavily in this area. We have continued to offer market-leading remuneration, best-in-class learning and development opportunities for our people. With a proven track record of internal promotion and growing quickly, the opportunity for fast career progression is enormous.

The central team continues to grow, with recent additions in the People, Recruitment, and Food functions. Central support is critical for continued growth, and we will invest further over the coming year.

The year aheadIt has been a transformational year and we finish with strong momentum and an increasingly growing awareness of the brand. We have a brand performing strongly and well positioned for further ambitious growth. We have every confidence that very shortly Coco di Mama will be joining the small group of players leading the London QSR space.


The reported statutory results cover the 52 week period to 26 June 2016 and comparatives for the period 3 July 2014 to 28 June 2015, the first period in which the Azzurri Group (“the Group”)operated. The table below also summarises the comparative full year trading results of Azzurri Restaurants Limited as a more meaningful comparison of the underlying business performance to this year’s results.

Azzurri Group

Limited2015/16

52 weeks£m

Azzurri Restaurants

Limited2014/15

52 weeks* £m

52 week change

%

Azzurri Group

Limited3 July 2014 to 28 June 2015*

£m

Total restaurant sales 233.7 217.7 7.3% 93.9Adjusted EBITDA1 35.0 32.9 6.4% 13.7Margin 15.0% 15.1% 14.6%Depreciation, amortisation and other adjustments (17.6) (11.7) (6.6)EBIT2 17.4 21.2 -17.9% 7.0Exceptional items (1.1) (2.2) (4.7)Operating profit 16.3 19.0 -14.2% 2.3

The above results include those of Coco di Mama from the date of acquisition of CDM Trading Limited by CDM Holdco Limited on 8 July 2015.

The Azzurri Group Limited comparative results include those of ASK Italian and Zizzi, both trading under Azzurri Restaurants Limited, from the date of acquisition of Azzurri Central Limited by Azzurri Trading Limited on 21 January 2015.

The Azzurri Restaurants Limited comparative results include those of ASK Italian and Zizzi for the 52 weeks to 28 June 2015. 1 Adjusted EBITDA is defined as EBIT plus depreciation and amortisation, goodwill amortisation,

items of a one-off non-recurring nature and pre-opening costs, which totalled £1.5m (2015: £1.0m)2 EBIT is defined as operating profit excluding exceptional costs* Figures have been restated following the adoption of FRS 102

Financial review

Overview



16

Overview




Financial review

■ Corporation tax £0.3 million■ Rates and council tax £9.9 million■ Stamp duty land tax £0.3 million■ Employers’ NIC £5.1 million■ Employees’ PAYE/NIC £12.6 million■ VAT paid £28.4 million

Performance summaryThis year, total sales for the Group grew to £233.7m, following the in-year acquisition of Coco di Mama which contributed revenues of £6.9m. Total sales were 7.3% higher than the prior year and all three brands experienced like-for-like growth.

Increased sales across all our businesses were driven by the continued development and evolution of our brands as well as continued investment in our estate.

Adjusted EBITDA for the year was £35.0m, representing pro-forma growth of 6.4% with the margin at 15.0%. The margin reduced by 0.1% largely due to a different conversion obtained from Coco di Mama.

To support Azzurri’s continual growth strategy, this year the Group has continued to invest through:• the majority acquisition of Coco di Mama, which is currently in a rapid growth phase;• opening our first restaurant outside of the United Kingdom,

expanding Zizzi internationally by opening in the Republic of Ireland;

• opening 20 new sites across the estate; and • improving the existing estate with 27 refurbishments and

transformations completed in the year.

Market updateAgain this year, we saw both UK GDP and Consumer Confidence continue to increase. The restaurant sector also continued to grow, albeit at a slower pace than the prior year, with like-for-like revenue growth of 1.6% (source: Coffer Peach Business Tracker).

The strength of sterling against the euro, in Summer of 2015, resulted in record numbers of holiday goers vacationing outside the UK this year, however the Group has benefitted from low input price inflation, assisted by the strong exchange rate. Interest rates also remained low during the period.

The sector was impacted by a number of headwinds during the year including labour cost pressures as a result of the National Minimum Wage increase in October 2015 and with the introduction of the National Living Wage in April 2016. Wage inflation looks set to continue to rise at significant levels until at least 2020.

The year ended with the UK’s referendum result, creating market uncertainty which saw a sharp decline in the value of sterling, and a subsequent further reduction in interest rates. We continue to closely monitor business performance and are prepared to adjust our plans accordingly throughout this period.

CashflowNet cash inflow from operations for the year was £32.1m. During the year the key components of cash flow were:• net investment in new restaurants and the maintenance

of the estate totalling £22.2m;• the majority acquisition of Coco di Mama for £7.7m, funded

by a drawdown of £8.0m from our banking facilities; and• interest and loan repayments of £10.8m.

FinancingThe Group’s financing structure, implemented on acquisition in January 2015, comprises three main components:• external bank debt;• shareholder loan notes; and• shareholder equity.

The Group’s external senior debt is syndicated to a number of participating financial institutions with maturity dates of June 2020 and June 2021. Further details are provided in notes 16 and 17 to the financial statements. In addition, the Group has a revolving credit facility of £10 million, of which £1m is carved out to cover insurance guarantees; and a £15 million capex facility, of which £7m was undrawn at the year end.

The external facilities are subject to certain financial and non-financial covenants. The financial covenants include annual limitations on capital expenditure and require the maintenance of certain minimum ratios of EBITDA to interest payable and a maximum ratio of net debt to EBITDA. In addition there was a requirement that the net operating cash flows were not less than the Group’s cash cost of servicing the bank debt. All of the covenants were met with adequate headroom during the year.

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.

TaxationThe Group paid £0.3m in the year in relation to corporation tax instalments. The modest level of payment is a result of two key continuing features of its business:• significant investment in capital expenditure across the

estate, which qualifies for capital allowances that are designed to encourage such investment; and

• interest payments on the external debt and shareholder loans, a proportion of which is deductible for tax purposes.

Although minimal corporation tax arose during the period, the Group’s contribution to the UK Exchequer is significant, contributing over £56 million during the financial year.

Overview



17

18


Jason McGibbon – Non-Executive Director

Jason 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.

Mike Black – Non-Executive Director

Mike 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 7 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 Smyth – Chairman

Harvey became Chairman of the Group in January 2015. He was previously Chief Executive Officer of the Gondola Group and PizzaExpress, and 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.

Kieran Pitcher – Group Property Director

Kieran 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.

Jim Pickworth – Chief Financial Officer

Jim was appointed Chief Financial Officer of the Group in January 2015, following his roles as Chief Financial Officer of ASK Italian & Zizzi since 2013 and, for 6 years prior to that, Finance Director at Zizzi. He was previously Finance Director for Yo! Sushi as well as 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.

Steve Holmes – Chief Executive Officer

Steve 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.

Board of Directors

Overview



19O



ents


Strategic report for the 52 weeks ended 26 June 2016

The directors present their strategic report for Azzurri Group Limited (“the Company”) and its subsidiaries (together “the Group”) for the 52 weeks ended 26 June 2016 (“the period”).

Principal activities, business review and future developmentsDuring the period, the Company continued its activity as an investment company. The principal activity of the Group is to operate restaurants.

During the period the Group incorporated CDM Group Limited and its subsidiary CDM Holdco Limited. On 8 July 2015, CDM Holdco Limited acquired CDM Trading Limited (previously Tenfour Ventures Limited) trading as Coco di Mama. The Group has acquired a controlling interest in CDM Group Limited.

The Group also expanded into Ireland, incorporating Azzurri Restaurants Ireland Limited during the period. Incorporated in Ireland, to trade under the Zizzi brand, the first restaurant opened in Dundrum Town Centre in Dublin in April 2016. Further expansion is planned for the coming year.

During the year, the group incorporated 8 Slices Limited to operate the start-up brand “Radio Alice”.

The Group measures performance using the following three key performance indicators (“KPIs”), for purposes of meaningful comparison KPIs were measured for the trading company:

• Sales versus prior year;

• Adjusted EBITDA (earnings before interest, tax, depreciation and amortisation, one-off adjustments and pre-opening costs) 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 found below.

Results and performance of the GroupThe results of the Group for the period are set out on page 28 and show a loss on ordinary activities before taxation of £13.1m (2015: £8.5m deficit). The total shareholders’ deficit as at 26 June 2016 is £17.4m (2015: £7.4m deficit).

Results and performance of the trading companiesThe Group continued to focus on expansion of the established brands and the acquisition of a new brand. This strategy in the face of a highly competitive market delivered strong growth on the previous year.

Sales and sales growth – Group sales for the period were £233.7m. Group Sales in the previous period were £93.9m, reflecting the period of Azzurri ownership. When compared to the trading company, with sales of £217.7m, this represents a £16.0m or 7.3% growth. The contribution to turnover by Coco di Mama was £6.9m for the period since acquisition.

Gross profit – The Group‘s gross profit margin was 17.7% for the period, up from 16.9% in the prior year.

Adjusted EBITDA – The Group’s Adjusted EBITDA grew from £32.9m in the previous period to £35.0m.

Exceptional costs – The Group incurred exceptional costs during the year of £1.1m (2015: £4.7m). See note 5 for further details.

Following a year of marginal economic growth and with the results of the EU referendum, the Group, while committed to its growth plans, is monitoring market conditions and assessing the impact a potential downturn may bring. A combination of expansion and a year of like-for-like growth, the three core brands performed well. ASK Italian and Zizzi continued to focus on improving their proposition, with ever more refurbishment a key part of the strategy. The subsequent expansion of Coco di Mama has seen the business nearly double, with the Group being able to add significant synergies in the form of procurement and cost savings. Azzurri’s brands are well positioned to continue their strong performance.

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

Performance indicator 2016 2015 Growth %

Restaurant turnover £233.7m £217.7m 7.3%Adjusted pre-exceptional EBITDA £35.0m £32.9m 6.3%Adjusted pre-exceptional EBITDA margin 15.0% 15.1%Number of restaurants 268 248 8.1%

Adjusted EBITDA is defined as operating profit before exceptional costs, plus depreciation and amortisation, goodwill amortisation, items of a one-off non-recurring nature and pre-opening losses.

During the 2016 financial period, the Group has continued to develop its portfolio of restaurants. The Group has invested £12.4m of capital in opening 20 new sites. A further £4.9m has been invested in refurbishment of the existing estate.

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.

Overview



20


Strategic report for the 52 weeks ended 26 June 2016

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.

FRS 102 transitionThis is the first year the Group has presented its results under the new FRS 102 accounting framework. This framework replaces UK GAAP which the Group previously reported under. The date of transition adopted by the Group was 3 July 2014. The comparatives shown in the financial statements have been restated to reflect FRS 102 and as a result there has been a decrease in profit before tax for the period 3 July 2014 to 28 June 2015 of £0.3m. There was an overall increase to total comprehensive loss of £2.4m and the net balance sheet impact was a £2.4m decrease in net liabilities. A full overview of the impact of the transition on the Group’s prior year results can be found in note 30.

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, an annual Risk Review 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 secretary

21 October 2016

Overview



21O



ents


Directors’ report

The directors present their annual report for the Company and the Group together with their audited consolidated financial statements for the 52 weeks ended 26 June 2016. The basis of preparation of the financial statements is set out in note 2 on page 35.

Results and dividendsThe results of the Group for the period are set out on page 28.

The directors do not recommend the payment of a dividend (2015: £nil).

Directors The directors of the Company during the period and up to the date of signing the financial statements are:

• Harvey Smyth

• Stephen Holmes

• James Pickworth

• Kieran Pitcher

• Michael Black

• Jason McGibbon

A brief summary of the experience of each director is provided on page 18.

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.

The Group made no political donations in the period (2015: none).

Going concern The Group’s financial performance and position is described in the Financial review on pages 16 and 17. The directors have reviewed cash flow forecasts for a three year period from the year end date which indicate the Group will be able to meet all its liabilities when they fall due for the foreseeable future, despite having net liabilities as at 26 June 2016. Projected covenant compliance and liquidity is also monitored and management have considered the mitigating actions available to ensure that sufficient headroom on each covenant is maintained for the foreseeable future. The Group also has additional facilities available and the maturity dates for all of the Group’s banking arrangements are to 2020 and later. Having made an assessment of both liquidity and covenant compliance, the directors have continued to adopt the going concern basis in preparing the financial statements.

EmployeesServing around 15 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, and a weekly feedback process for operational issues.

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.

Operations outside the UKDuring the period the Group expanded into Ireland, opening Zizzi in Dublin. The intention is to open further restaurants in future periods.

Overview



22


Directors’ report

EnvironmentThe Azzurri Group has continued to reduce its impact on the environment by reducing its carbon footprint. There are a number of ongoing environmental programmes that work to do this and include the following:

• Azzurri manages waste at 184 restaurants (2015: 164), with the remaining sites having their waste managed by the landlord. Of those 184 restaurants there are 168 segregating food waste which is sent to anaerobic digestion plants. Overall, 83% of waste (by weight) is segregated on-site into various recyclable waste streams. The Group continues to assess recycling provisions at each restaurant in order to increase on-site segregation.

• Used cooking oil is collected from all Azzurri restaurants and recycled into biodiesel.

• 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 closely analyse Smart Meter data to ensure equipment is not over-used or utilised too early or inappropriately.

• ASK Italian and Zizzi 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 and interest rate 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.

(a) Foreign exchange riskThe Group operates primarily in the UK and is 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 of any adverse movements in the euro.

The finance function is responsible for managing the net position in each foreign currency (predominantly 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 majority hedged up to February 2018.

(e) Price riskThe Group is exposed to 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, Directors’ Report and the group and parent company financial statements (the “financial statements”) in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have prepared the financial statements in accordance with United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”, and applicable law (United Kingdom Generally Accepted Accounting Practice).

Overview



23O



ents


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 and company 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 FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” has been followed, subject to any material departures disclosed and explained in the financial statements;

• notify shareholders in writing about the use of disclosure exemptions, if any, of FRS 102 used in the preparation of financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and 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.

BIS audit exemptionFor the Group’s subsidiaries, Azzurri MidCo 1 Limited, Azzurri MidCo 2 Limited, Azzurri Trading Limited, Azzurri Central Limited , advantage has been taken of the audit exemption available for small companies conferred by section 479A of the Companies Act 2006 on the grounds

• that for the year ended 26 June 2016 the company was entitled to the exemption from a statutory audit under section 479A of the Companies Act 2006 relating to subsidiary companies, and

• that no notice has been deposited under section 476 of the Companies Act 2006 in relation to the financial statements for the financial year.

The directors acknowledge their responsibilities for

• ensuring that the Company keeps adequate accounting records which comply with section 366 of the Companies Act 2006, and

• preparing financial statements which give a true and fair view of the state of the affairs of the Company at 26 June 2016 and of its profit and loss for the year then ended in accordance with the requirement of section 394 of the Companies Act 2006, and which otherwise comply with the requirements of the Companies Act 2006 relating to financial statements so far as applicable to the company.

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 secretary

21 October 2016

Directors’ report

Overview



24


Corporate 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 who represent the shareholders’ interests 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, and 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 21.

Overview



25O



ents


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 Jason McGibbon. Relevant senior management are invited to attend Audit Committee meetings as required. During the year the group undertook a competitor tender process for audit services.

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.

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 has reconfirmed its agreement relating to the 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 with HMRC. The Group also seeks to reconfirm the treatment of 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).

Corporate governance report

Overview



26


Independent 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 26 June 2016 and of the group’s loss and cash flows for the 52 week period (the “period”) then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

What we have auditedThe financial statements, included within the Annual Report and Financial Statements (the “Annual Report”), comprise:

• the consolidated and company balance sheets as at 26 June 2016;

• the consolidated profit and loss account and consolidated statement of comprehensive income for the period then ended;

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

• the consolidated and company statement of changes in equity 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 United Kingdom Accounting Standards, comprising FRS 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice), and applicable law.

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 period 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 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, 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.

Overview



27O



ents


Independent auditors’ report to the members of Azzurri Group Limited

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 AuditorsGatwick

21 October 2016

Overview



28



Note

52 weeks ended 26 June 2016

£m

3 July 2014 to 28 June 2015

£m

Group turnover 3 233.7 93.9 Cost of sales (192.4) (78.0)Gross profit 41.3 15.9 Administrative expenses (23.9) (8.9)Exceptional costs 5 (1.1) (4.7)Total administrative expenses (25.0) (13.6)Group operating profit 16.3 2.3 Loss on disposal of tangible assets (1.3) (0.3)Profit on ordinary activities before interest and taxation 15.0 2.0 Net finance costs 7 (28.1) (10.5)Loss on ordinary activities before taxation (13.1) (8.5)Tax on loss on ordinary activities 8 3.6 (0.4)Loss for the financial period (9.5) (8.9)

Loss attributable to:Owners of the parent (8.6) (8.9)Non-controlling interests (0.9) –

(9.5) (8.9) The results above all relate to continuing operations.

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 ended 26 June 2016 the Company generated a £5.6m loss (2015: loss of £2.4m).

Consolidated profit and loss account for the 52 weeks ended 26 June 2016

Overview



29O



ents



Note


£m

3 July 2014 to 28 June 2015

£m

Loss for the financial period (9.5) (8.9)Other comprehensive (expense)/income: Foreign exchange translation reserve 20 (0.1) 0.1 Total comprehensive expense for the period (9.6) (8.8)

Total comprehensive expense attributable to:Owners of the parent (8.7) (8.8)Non-controlling interests (0.9) – (9.6) (8.8)

Consolidated statement of comprehensive income for the 52 weeks ended 26 June 2016

Overview



30



Note26 June 2016

£m28 June 2015

£m

Fixed assets Intangible assets 9 185.2 177.4 Tangible assets 10 140.1 130.3 325.3 307.7 Current assets Inventories 11 7.3 6.9 Debtors 12 10.8 10.0 Cash at bank and in hand 13 5.4 4.8 23.5 21.7 Creditors: amounts falling due within one year 14 (42.6) (40.3)Net current liabilities (19.1) (18.6)Total assets less current liabilities 306.2 289.1 Creditors: amounts falling due after more than one year 15 (294.4) (264.2)Provisions for liabilities 18 (29.2) (32.7)Net liabilities (17.4) (7.8)Capital and reserves Called up share capital 20 – – Share premium account 20 1.0 1.0 Translation reserve 20 (0.1) – Accumulated losses 20 (17.4) (8.8)Total equity attributable to owners of the parent (16.5) (7.8)Non-controlling interests (0.9) –Total equity (17.4) (7.8)

The notes on pages 35 to 66 form an integral part of these statements.

The financial statements on pages 28 to 66 were approved by the Board of Directors on 21 October 2016 and signed on its behalf by

Stephen Holmes James Pickworth Director Director

Company registration number: 09115901

Consolidated balance sheet as at 26 June 2016

Overview



31O



ents



Note26 June 2016

£m28 June 2015

£m

Fixed assets Investments 19 46.0 46.0 46.0 46.0 Current assets Debtors 12 0.2 0.1 Net current assets 0.2 0.1 Total assets less current liabilities 46.2 46.1Creditors: amounts falling due after more than one year 15 (53.2) (47.5)Net liabilities (7.0) (1.4)Capital and reserves Called up share capital 20 – – Share premium account 20 1.0 1.0 Accumulated losses 20 (8.0) (2.4)Total equity (7.0) (1.4)

The notes on pages 35 to 66 form an integral part of these statements.

The financial statements on pages 28 to 66 were approved by the Board of Directors on 21 October 2016 and signed on its behalf by

Stephen Holmes James Pickworth Director Director

Company registration number: 09115901

Company balance sheetas at 26 June 2016

Overview



32



Called up share capital

£m

Share premium

account£m

Translation reserve

£m

Accumulated losses

£mTotal

£m

Non-controlling

interest£m

Total equity

£m

Balance as at 3 July 2014 – – – – – – –Loss for the financial year – – – (8.9) (8.9) – (8.9)Other comprehensive income for the year – – – 0.1 0.1 – 0.1 Issue of ordinary share capital (note 20) – 1.0 – – 1.0 – 1.0 Balance as at 28 June 2015 – 1.0 – (8.8) (7.8) – (7.8)Loss for the financial year – – – (8.6) (8.6) (0.9) (9.5)Other comprehensive loss for the year – – (0.1) – (0.1) – (0.1)Balance as at 26 June 2016 – 1.0 (0.1) (17.4) (16.5) (0.9) (17.4)

Consolidated statement of changes in equity for the 52 weeks ended 26 June 2016

Overview



33O



ents



Called up share capital

£m

Share premium

account£m

Accumulatedlosses

£mTotal

£m

Balance as at 3 July 2014 – – – –Loss for the financial year – – (2.4) (2.4)Issue of ordinary share capital (note 20) – 1.0 – 1.0 Balance as at 28 June 2015 – 1.0 (2.4) (1.4)Loss for the financial year – – (5.6) (5.6)Balance as at 26 June 2016 – 1.0 (8.0) (7.0)

Company statement of changes in equity for the 52 weeks ended 26 June 2016

Overview



34



Note26 June 2016

£m28 June 2015

£m

Net cash inflow from operating activities 21 32.1 3.8Interest paid (7.6) (0.8)Taxation paid (0.3) (1.0)Net cash generated from operating activities 24.2 2.1 Cash flow from investing activities Purchase of tangible fixed assets 10 (20.8) (10.1)Purchase of subsidiary net of cash 25 (7.7) (249.0)Net cash used in investing activities (28.5) (259.1) Net cash outflow before financing activities (4.3) (257.0) Cash flow from financing activities (Repayment)/issue of bank debt 16 (1.2) 113.8Issue of shareholder loan notes 16 0.1 100.0Issue of ordinary share capital 16 – 1.0Issue of preference shares 16 – 45.0Drawdown of capex facility 16 8.0 –(Repayment)/drawdown of revolver facility 16 (2.0) 2.0Net cash inflow from financing activities 4.9 261.8Net increase in cash and cash equivalents 21 0.6 4.8 Cash and cash equivalents at the beginning of the year 4.8 –Cash and cash equivalents at the end of the year 13 5.4 4.8

Consolidated cash flow statement for the 52 weeks ended 26 June 2016

Overview



35O



ents


Notes to the financial statements for the 52 weeks ended 26 June 2016

1 General informationThe 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, Zizzi and Coco di Mama businesses), together with the Group holding companies described in note 29 for the 52 weeks ended 26 June 2016. The results of CDM Trading Limited have been included from the date of acquisition of 8 July 2015.

The company is a private company limited by shares and is incorporated in the United Kingdom. The address of its registered office is Third Floor, Capital House, 25 Chapel Street, London NW1 5DH.

2 Accounting policiesStatement of complianceThe Group and individual financial statements of Azzurri Group Limited have been prepared in compliance with United Kingdom Accounting Standards, including Financial Reporting Standard 102, “The Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland” (“FRS 102”) and the Companies Act 2006.

Basis of preparation The financial information has been prepared on a going concern basis, under the historical cost convention, as modified by the recognition of certain financial assets and liabilities measured at fair value. The most significant accounting policies, which have been applied consistently throughout the period, are described below. Details of the transition to FRS 102 are disclosed in note 30.

The Company has taken advantage of the exemption in section 408 of the Companies Act from disclosing its individual profit and loss account.

Accounting judgements and estimatesThe preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group and Company accounting policies.

The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are listed below and in more detail in the related notes:

• the carrying amount of goodwill and intangible assets (note 9);

• the carrying amount of inventories (note 11);

• the carrying amount of debtors (note 12); and

• provisions for liabilities (note 18).

Going concernThe directors have reviewed cash flow forecasts for a three year period from the year end date which indicate the Group will be able to meet all its liabilities when they fall due for the foreseeable future, despite having net liabilities as at 26 June 2016. Projected covenant compliance and liquidity is also monitored and management have considered the mitigating actions available to ensure that sufficient headroom on each covenant is maintained for the foreseeable future. The Group also has additional facilities available and the maturity dates for all of the Group’s banking arrangements are to 2020 and later. Having made an assessment of both liquidity and covenant compliance, the directors have continued to adopt the going concern basis in preparing the financial statements.

Exemption for qualifying entities under FRS 102FRS 102 allows a qualifying entity certain disclosure exemptions, subject to certain conditions, which have been complied with, including notification of, and no objection to, the use of exemptions by the Company’s shareholders.

The Company has taken advantage of the following exemptions:

(i) from preparing a statement of cash flows, on the basis that it is a qualifying entity and the consolidated statement of cash flows, included in these financial statements, includes the Company’s cash flows;

(ii) from the financial instrument disclosures, required under FRS 102 paragraphs 11.39 to 11.48A and paragraphs 12.26 to 12.29, as the information is provided in the consolidated financial statement disclosures;

(iii) from disclosing the Company key management personnel compensation, as required by FRS 102 paragraph 33.7; and

(iv) a reconciliation of the number of shares outstanding at the beginning and end of the period, as required by FRS 102 p4.12(a)(iv).

Overview



36


Notes to the financial statements

2 Accounting policies continuedConsolidationThe 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.

The group recognises any non-controlling interest on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. The non-controlling interest’s proportionate share in total comprehensive income for the financial year is recognised in equity.

Foreign currency The Group’s financial statements are presented in pound sterling and rounded to millions, with the exception of Notes 6, 16 and 20. The Company’s functional and presentation currency is the pound sterling.

Transactions 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.

The trading results of Group undertakings are translated into sterling at the average exchange rates for the year. Exchange adjustments arising from the translation of the profits or losses at average rates are recognised in ‘other comprehensive income’.

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

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

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

Exceptional 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 or loss 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.

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 against.

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.

Overview



37O



ents



2 Accounting policies continuedBusiness combinations and goodwillThe cost of a business combination is the fair value of the consideration given, liabilities incurred or assumed and of equity instruments issued plus the costs directly attributable to the business combination.

On acquisition of a business, fair values are attributed to the identifiable assets, liabilities and contingent liabilities unless the fair value cannot be measured reliably, in which case the value is incorporated in goodwill.

Goodwill 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 applied by the Group is 20 years for the Azzurri Restaurant group and 10 years for the Coco di Mama acquisition.

On acquisition, goodwill is allocated to cash-generating units (‘CGUs’) that are expected to benefit from the combination.

Goodwill is assessed for impairment when there are indicators of impairment and any impairment is charged to the income statement. Reversals of impairment are recognised when the reasons for the impairment no longer apply.

Intangible assetsIntangible assets are stated at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated, using the straight-line method, to allocate the depreciable amount of the assets to the residual values of their estimated useful lives, as follows:

Coco di Mama brand 10% per annum

Amortisation is charged to Administrative expenses in the profit and loss account. The Zizzi and ASK Italian brands are considered by the directors to have an indefinite useful life and no amortisation is charged.

Intangible assets are assessed for impairment when there are indicators of impairment and any impairment is charged to the income statement. Reversals of impairment are recognised when the reasons for the impairment no longer apply.

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 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. The maximum depreciation period for short-term leasehold properties is 30 years.

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.

Tangible fixed assets are derecognised on disposal or when no future economic benefits are expected. On disposal, the difference between the net disposal proceeds and the carrying amount is recognised in Loss on disposal of tangible assets in the income statement.

The carrying values of tangible fixed assets are reviewed for impairment 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 is charged to the income statement. Reversals of impairment are recognised when the reasons for the impairment no longer apply.

InventoriesRaw 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. Cost for smallware inventories is determined by reference to the standard quantity in issue to each restaurant.

Overview



38



2 Accounting policies continuedCash and liquid resourcesLiquid 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.

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.

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.

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. 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.

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

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 lease term. The Group has taken advantage of the exemption in respect of lease incentives on leases in existence on the date of transition to FRS 102 (1 July 2014). The Group continues to credit these lease incentives to the profit and loss account over the period to the first review date.

Financial instrumentsThe Group has chosen to adopt Sections 11 and 12 of FRS 102 in respect of financial instruments.

(i) Financial assetsBasic financial assets, including trade and other debtors and cash and bank balances are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the transaction is measured at the present value of the future receipts discounted at a market rate of interest.

Such assets are subsequently carried at amortised cost using the effective interest method.

At the end of each reporting period, financial assets measured at amortised cost are assessed for evidence of impairment. If an asset is impaired the impairment loss is the difference between the carrying amount and the present value of the estimated cash flows discounted at the asset’s original effective interest rate. The impairment loss is recognised in profit or loss.

If there is a decrease in the impairment loss arising from an event occurring after the impairment was recognised, the impairment is reversed. The impairment reversal is recognised in profit or loss.

Derivatives, including interest rate swaps and foreign exchange contracts, are recognised at fair value on the date the derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of the derivative contracts are recognised in the profit and loss account.

Financial assets are derecognised when (a) the contractual rights to the cash flows from the asset expire or are settled, or (b) substantially all the risks and rewards of the ownership of the asset are transferred to another party.

(ii) Financial liabilitiesBasic financial liabilities, including trade and other payables, bank loans and preference shares that are classed as debt, are initially recognised at transaction price, unless the arrangement constitutes a financing transaction, where the debt instrument is measured at the present value of future receipts discounted at a market rate of interest.

Debt instruments are subsequently carried at amortised cost, using the effective interest rate method.

Overview



39O



ents



2 Accounting policies continuedFinancial instruments continuedFees paid on establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is amortised over the period of the facility to which it relates.

Derivatives, including interest rate swaps and foreign exchange contracts, are recognised at fair value on the date the derivative contract is entered into and are subsequently re-measured at their fair value. Changes in the fair value of the derivative contracts are recognised in the profit and loss account.

InvestmentsInvestments are held at cost less accumulated impairment losses.

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

3 Group turnover


£m

3 July 2014 to 28 June 2015

£m

Analysis of turnover by business sectorRestaurants 226.8 93.9 Quick-service restaurants 6.9 – 233.7 93.9


£m

3 July 2014 to 28 June 2015

£m

Analysis of turnover by geographyUnited Kingdom 233.4 93.9 Republic of Ireland 0.3 – 233.7 93.9

Overview



40



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


£m

3 July 2014 to 28 June 2015

£m

Shown within cost of sales: Employee costs (note 6) 72.9 29.4 Depreciation of tangible fixed assets (note 10): – Plant, fixtures and IT equipment 5.9 2.5 – Short leasehold properties 4.7 2.0 Operating lease rentals: – Short leasehold properties 27.5 10.1 Rental income (1.9) –


£m

3 July 2014 to 28 June 2015

£m

Shown within administrative expenses: Employee costs (note 6) 10.9 3.7 Amortisation of intangible assets (note 9) 4.7 1.5 Depreciation of tangible fixed assets (note 10): – Plant, fixtures and IT equipment 0.4 0.2 – Short leasehold properties 0.2 0.0 Operating lease rentals: – Short leasehold properties 0.5 0.9 Rental income (0.1) (0.8)Auditors’ remuneration: – Statutory audit fees and expenses 0.1 0.1 – Advisory services – 0.2

Overview



41O



ents



5 Exceptional costsGroup


£m

3 July 2014 to 28 June 2015

£m

Exceptional costs – Brand development costs 0.8 – – Restructuring costs 0.3 – – Transaction costs – 3.1 – Separation costs – 1.0 – Estate review – 0.6 Total operating exceptional costs 1.1 4.7

Brand development costs largely relate to costs associated with expanding into new territories. The prior year costs relate to the separation from the Gondola group and transaction costs following the Azzurri acquisition.

6 Employees and directorsGroup


£m

3 July 2014 to 28 June 2015

£m

a) Employee costs:Wages and salaries 78.0 30.8Social security costs 5.1 2.0Other pension costs 0.7 0.3

83.8 33.1Disclosed within:Cost of sales 72.9 29.4Administrative expenses 10.9 3.7

83.8 33.1

Overview



42



6 Employees and directors continued52 weeks ended

26 June 20163 July 2014 to28 June 2015

b) Employee numbers (including directors)The monthly average number of persons employed by the Group during the period was:Restaurants and distribution 5,730 5,457Administration 120 102

5,850 5,559

Total directors’ remuneration was as follows:


£000

3 July 2014 to28 June 2015

£000

Aggregate emoluments 1,258.6 824.7

Included within the emoluments above are pension contributions of £43,700 (2015: £22,700) paid into the individual personal pension plans of three directors.

Emoluments in respect of the highest paid director were as follows:


£000

3 July 2014 to 28 June 2015

£000

Aggregate emoluments 420.1 295.5Pension contributions 16.3 9.5 436.4 305.0

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. During the period, £0.2m (2015: £0.1m) was accrued to Bridgepoint Partners LLP for their services (see note 24). This amount was not included in the aggregate emoluments disclosed above.

No director waived any emoluments in the period (2015: nil).

The Group does not operate a defined benefit pension scheme.

CompanyThe Company has no employees (2015: nil).

Overview



43O



ents



7 Net finance costsGroup

Note


£m

3 July 2014 to 28 June 2015

£m

Finance income Gain on revaluation of fair value derivatives – 0.1 Foreign exchange gain 0.1 – 0.1 0.1 Finance costs Bank loans – Senior facilities 15 (7.2) (2.6)Amortisation of debt issue costs 15 (0.9) (0.4)Interest payable on shareholder loan notes 15 (13.0) (5.2)Preference share dividends 15 (5.7) (2.4)Loss on revaluation of fair value derivatives (1.4) – (28.2) (10.6)Net finance costs (28.1) (10.5)

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

Overview



44



8 Tax on loss on ordinary activities Group


£m

3 July 2014 to 28 June 2015

£m

Current tax United Kingdom corporation taxation 0.1 – Adjustments in respect of prior periods (0.4) – Total current tax charge (0.3) – Deferred tax Origination and reversal of timing differences (0.4) 0.4 Effect of change in rate of taxation (2.9) – Total deferred tax charge (note 18) (3.3) 0.4 Tax charge on ordinary activities (3.6) 0.4

The tax charge for the period is higher (2015: higher) than the standard rate of corporation tax in the UK of 20.0% (2015: 20.75%). The differences are explained below:


£m

3 July 2014 to 28 June 2015

£m

Loss on ordinary activities before taxation (13.1) (8.5)Loss on ordinary activities multiplied by standard rate of corporation tax in the UK of 20.0% (2.6) (1.7)Effects of: Expenses for tax purposes non-deductible – 1.0 Prior year adjustments (0.4) – Re-measurement of deferred tax, change in UK tax rate (2.9) – Amortisation of goodwill non-deductible 0.7 0.3 Preference share dividends non-deductible 1.1 0.5 Interest non-deductible 0.5 0.3 Total tax (3.6) 0.4

The Finance (No.2) Act 2015 was substantively enacted on 26 October 2015 and reduced the main rate of corporation tax to 19.0% with effect from 1 April 2017 and 18.0% from 1 April 2020. Closing deferred tax balances have therefore been valued at 18.0%, 19.0% or 20.0% depending on the date they are expected to unwind. A further reduction in the main rate of corporation tax to 17.0% with effect from 1 April 2020 has been announced but was not substantively enacted at the balance sheet date.

Overview



45O



ents



9 Intangible assets Group

Note

Goodwill£m

Brands£m

Total£m

At 28 June 2015 Cost 70.8 108.1 178.9 Accumulated amortisation (1.5) – (1.5)Net book amount 69.3 108.1 177.4 Year ended 26 June 2016 Opening net book amount 69.3 108.1 177.4 Acquisition 25 9.6 2.9 12.5 Amortisation (4.4) (0.3) (4.7)Closing net book amount 74.5 110.7 185.2 At 26 June 2016 Cost 80.4 111.0 191.4 Accumulated amortisation (5.9) (0.3) (6.2)Net book amount 74.5 110.7 185.2

Goodwill relating to the Azzurri acquisition 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 ASK Italian and Zizzi are long standing operations and that the Group continues to have growth opportunities in the long-term future. Goodwill and brands relating to the Coco di Mama acquisition are amortised over 10 years, which the directors believe is an appropriate period for the business.

CompanyThe Company has no intangible assets (2015: £nil).

Overview



46



10 Tangible assets Group

Note

Assets underconstruction

£m

Short leasehold properties

£m

Plant, fixtures and

IT equipment£m

Total£m

At 28 June 2015 Cost 2.2 147.6 77.1 226.9 Accumulated depreciation – (48.9) (47.6) (96.5)Net book amount 2.2 98.7 29.5 130.4 Year ended 26 June 2016 Opening net book amount 2.2 98.7 29.5 130.4 Acquisition 25 – 0.6 0.5 1.1 Additions 14.8 1.1 4.9 20.8 Transfers (16.0) 11.0 5.0 – Disposals – (0.4) (0.6) (1.0)Depreciation – (4.9) (6.3) (11.2)Closing net book amount 1.0 106.1 33.0 140.1 At 26 June 2016 Cost 1.0 157.7 85.8 244.5 Accumulated depreciation and impairment – (51.6) (52.8) (104.4)Net book amount 1.0 106.1 33.0 140.1

There was no capital expenditure contracted but not provided as at 26 June 2016 (2015: £nil).

CompanyThe Company has no tangible fixed assets (2015: £nil).

Overview



47O



ents



11 Inventories Group

26 June 2016

£m28 June 2015

£m

Equipment 5.5 5.3Food and drink 1.8 1.6 7.3 6.9

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

Inventories are stated after provision for impairment of £38,000 (2015: £38,000). During the year £53.1m (2015: £49.3m) of inventory has been recognised as an expense.

CompanyThe Company holds no inventories (2015: £nil).

12 Debtors Group Company

26 June 2016

£m28 June 2015

£m26 June 2016

£m28 June 2015

£m

Trade debtors 1.2 3.8 – –Restricted cash – 0.2 – –Derivative financial instruments – 0.1 – –Prepayments and accrued income 9.4 5.9 – –Corporation tax 0.2 – – –Amounts owed by subsidiary undertakings – – 0.2 0.1 10.8 10.0 0.2 0.1

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

Trade debtors are stated after provision for impairment of £13,000 (2015: £220,000).

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

The prior year restricted cash relates to a £0.2m letter of credit deposited with Barclays in relation to potential insurance liabilities. The Group no longer holds this letter of credit.

Overview



48



13 Cash at bank and in handGroup

26 June 2016

£m28 June 2015

£m

Cash at bank and in hand 5.4 4.8Total cash at bank and in hand 5.4 4.8

CompanyThe Company holds no cash (2015: £nil).

14 Creditors: amounts falling due within one yearGroup

26 June 2016

£m28 June 2015

£m

Trade creditors 8.3 5.0Bank loans – Senior facilities (note 16) 5.3 2.3Accrued bank interest 1.6 2.2Revolving facility – 2.0Taxation and social security 7.6 8.6Accruals and deferred income 12.6 13.5Other creditors 7.2 6.7

42.6 40.3

CompanyThe Company has no creditors falling due within one year (2015: £nil).

Overview



49O



ents



15 Creditors: amounts falling due after more than one year Group Company

26 June 2016

£m28 June 2015

£m26 June 2016

£m28 June 2015

£m

Amounts falling due between one and five years Bank loans – Senior facilities 18.6 18.8 – –Capex facility 8.0 – – –Derivative financial instruments 1.3 – – – 27.9 18.8 – –Amounts falling due after more than five yearsBank loans – Senior facilities 89.6 92.7 – –Unsecured shareholder loan notes 123.7 105.2 – –Preference shares 53.2 47.5 53.2 47.5 266.5 245.4 53.2 47.5Total creditors falling due after more than one year 294.4 264.2 53.2 47.5

16 Loans and borrowings Group Company

26 June 2016

£m28 June 2015

£m26 June 2016

£m28 June 2015

£m

Bank loans – Senior facilities 113.6 113.8 – –Capex facility 8.0 – – –Revolving facility – 2.0 – – Unsecured shareholder loan notes 123.7 105.2 – –Preference shares 53.2 47.5 53.2 47.5 298.5 268.5 53.2 47.5

Overview



50



16 Loans and borrowings continuedSenior 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 £6.6m are being amortised over the period to the maturity date. At 26 June 2016, the unamortised cost was £5.4m (2015: £6.2m).

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

Principal loan amount

Weighted average

interest rate above LIBOR

Maturity date

Senior A facility £28.8m 4.25% January 2021Senior B facility £90.0m 4.75% January 2022

Additional borrowing facilitiesThe Group has a Capex facility of £15.0m (2015: £15.0m) of which £8.0m (2015: £nil) was drawn during the year to finance the purchase of CDM Trading Limited. The facility accrues interest at LIBOR plus 4.25% and has a final maturity date of January 2021.

There is also a committed revolving facility of £10.0m, none of which was drawn at year end (2015: £2.0m), however £1.0m has been carved out to cover outstanding letters of credit. The utilised portion of each facility incurs interest at LIBOR plus 4.25%, while the unused facility incurs commitment fees of 1.7%. The facility has a final maturity date of January 2021.

Unsecured loan notes Azzurri MidCo 1 Limited, a subsidiary of the Company, has in issue 100,000,000 £1 shareholder loan notes (2015: 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.

CDM Holdco Limited, a subsidiary of the Company, has in issue £5.4m (2015: nil) shareholder loan notes. The loan notes comprise strip loan notes of £3.4m which accrue interest at a compound rate of 12% per annum and the vendor loan notes of £2.0m accrue interest at a compound rate of 3% per annum. Loan notes are redeemable through a number of options however if these option are not exercised, the maturity date is January 2023.

8 Slices Limited, a subsidiary of the Company, has in issue 100,000 £1 shareholder loan notes (2015: nil). The maturity date of the loan notes is 1 January 2023. The loan notes accrue interest at a compound rate of 12% per annum.

Overview



51O



ents



16 Loans and borrowings continuedPreference shares

Group and Company

26 June 2016

£28 June 2015

£

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

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 £45.1m. 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 are 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.

17 Financial instrumentsThe Group and Company have the following financial instruments:

Group Company

Note26 June 2016

£m28 June 2015

£m26 June 2016

£m28 June 2015

£m

Financial assets measured at fair value through profit or loss Derivative financial instruments 12 – 0.1 – – – 0.1 – –Financial assets that are debt instruments measured at amortised cost – –Trade debtors 12 1.2 3.8 – –Other debtors 12 1.0 – – –Restricted cash 12 – 0.2 – –Amounts owed by group undertakings 12 – – 0.2 0.1 2.2 4.0 0.2 0.1Financial liabilities measured at fair value through profit or loss Derivative financial instruments 15 (1.3) – – – (1.3) – – –

Overview



52



Group Company

Note26 June 2016

£m28 June 2015

£m26 June 2016

£m28 June 2015

£m

Financial assets that are debt instruments measured at amortised cost Bank loans – Senior facilities 15, 16 (113.6) (113.8) – –Capex facility 15, 16 (8.0) – – –Trade creditors 14 (8.3) (5.0) – –Unsecured shareholder loan notes 15, 16 (123.7) (105.2) – –Revolving facility 14, 16 – (2.0) – –Accruals and deferred income 14 (12.6) (13.5) – –Other creditors 14 (7.2) (6.7) – –Preference shares 15, 16 (53.2) (47.5) (53.2) (47.5) (326.6) (293.7) (53.2) (47.5)

With the exception of the derivative financial instruments, there is no material difference between the fair value and amortised cost of any of the financial instruments.

17 Financial instruments continued

Overview



53O



ents



17 Financial instruments continuedDerivative financial instruments – Interest rate swapsThe Group has entered into interest rate swaps to pay interest at 1.19%. The instrument is used to hedge the Group’s exposure to interest rate movements on the loan facility. At period end there were three swaps totalling £100,000,000. Details of the swap contracts are below:

Notional amount

Interest rate paid

Start date

Maturity date

Swaps – GBP £80.0m 1.19% August 2015

February2016

Swaps – GBP £100.0m 1.19% February2016

February2017

Swaps – GBP £90.0m 1.19% February2017

February2018

The fair value of the interest rate swaps is a liability of £1,318,000 (2015: £142,000 asset). During the 2016 year, a loss of £1,460,000 (2015: £142,000 gain) was recognised in the profit and loss account.

Derivative financial instruments – Forward exchange contractsDuring the year the Group entered into forward exchange contracts to mitigate the exchange rate risk associated with purchases made in euro. At balance date there were two contracts in place for the purchase of €0.4m at an average exchange rate of 1.34 (2015: €2.5m at an average exchange rate of 1.38).

The fair value of the forward exchange contracts is an asset of £29,000. A gain of £29,000 was recognised in the profit and loss account.

18 Provisions for liabilities Group

Deferred taxation

£m

Onerous leases

£mTotal

£m

At 28 June 2015 28.8 3.9 32.7Utilised in period (0.4) (0.7) (1.1)Acquisitions through business combinations 0.5 – 0.5Change in assumptions (2.9) – (2.9)At 26 June 2016 26.0 3.2 29.2

Overview



54



18 Provisions for liabilities continuedOnerous 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, until the end of their lease or until the directors estimate the properties can be sublet.

Deferred taxationThe provision for deferred tax consists of the following deferred tax liabilities/(assets):

26 June 2016£m

28 June 2015£m

Intangible assets 19.9 21.6 Accelerated capital allowances 6.4 7.2 Accumulated losses (0.3) – Total provision 26.0 28.8

CompanyThe Company had no provisions for liabilities at 26 June 2016 (2015: £nil).

19 InvestmentsCompany

£m

Investment in subsidiary companiesAt 28 June 2015 and 26 June 2016 46.0Total investment in subsidiary companies 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 29.

Overview



55O



ents



20 Share capital and other reserves Group and Company

26 June 2016

£28 June 2015

£

Allotted, issued and fully paid825,000 Ordinary A shares of £0.01 each 8,250 8,250 90,355 Ordinary B shares of £0.01 each 904 904 68,000 Ordinary C shares of £0.04 each 2,720 2,720 11,874 11,874

Ordinary A and C shares carry 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).

Share premium account Group and Company

26 June 2016£m

28 June 2015£m

Opening share premium account 1.0 – Premium arising on the issue of ordinary share capital – 1.0 Closing share premium account 1.0 1.0

Translation reserveGroup

26 June 2016£m

28 June 2015£m

Opening translation reserve – – Foreign exchange gain for period (0.1) – Closing translation reserve (0.1) –

Overview



56



20 Share capital and other reserves continuedAccumulated losses

Group Company

26 June 2016

£m28 June 2015

£m26 June 2016

£m28 June 2015

£m

Opening balance (8.9) – (2.4) –Loss for the financial period (9.5) (8.9) (5.6) (2.4)Closing balance (18.4) (8.9) (8.0) (2.4)

Attributable to:Owners of the parent (17.5) (8.8) (8.0) (2.4)Non-controlling interests (0.9) – – – (18.4) (8.8) (8.0) (2.4)

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

26 June 2016£m

28 June 2015£m

Loss for the financial period (9.5) (8.9)Adjustments for: Tax on loss on ordinary activities (3.6) 0.4 Net interest payable and similar charges 28.1 10.5 Operating profit 15.0 2.0 Depreciation of tangible fixed assets 11.2 4.7 Amortisation of intangible assets 4.7 1.5 Loss on disposal of assets 1.3 – Movement in provisions (0.6) – (Increase)/decrease in inventories (0.4) 0.1 (Increase)/decrease in debtors (0.3) 0.7 Increase/(decrease) in creditors 1.2 (5.3)Net cash inflow from operating activities 32.1 3.8

Overview



57O



ents



21 Notes to cash flow statement continuedb) Reconciliation of net cash flow to movement in net debt

26 June 2016£m

28 June 2015£m

Increase in cash (note 13) 0.6 4.8 Bank fees paid – 6.2 Issue of debt (8.1) (267.2)Repayment of debt 3.2 – Change in net debt resulting from cash flows (4.3) (256.2)Other non-cash changes (28.4) (5.5)Net debt at beginning of period (261.7) – Net debt at end of period (294.4) (261.7)

c) Analysis of changes in net debt

At 29 June 2015

£m

Cashflow movements

£mAcquired

£m

Non cashflow movements

£m

At 26 June 2016

£m

Cash at bank and in hand 4.8 0.5 0.1 – 5.4 Revolver loan (2.0) 2.0 – – – Bank loans – senior facility (current) (2.3) 1.2 – (4.2) (5.3)Bank loans – senior facility (non-current) (111.9) – – 3.6 (108.3)Shareholder loan notes (105.2) (0.1) – (18.4) (123.7)Capex facility – (8.0) – – (8.0)Derivative financial instruments 0.1 – – (1.4) (1.3)Preference shares (45.2) – – (8.0) (53.2)Total net debt (261.7) (4.4) 0.1 (28.4) (294.4)

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

Overview



58


22 Operating lease commitmentsGroupThe Group has the following future minimum lease payments for each of the following periods:

26 June 2016£m

28 June 2015£m

Land and buildingsNot later than one year 29.5 25.1Later than one year and not later than five years 113.8 99.5Later than five years 242.7 221.6

386.0 346.2

CompanyThe Company had no operating lease commitments at 26 June 2016 (2015: £nil).

23 Contingent liabilities On 29 November 2014, certain Company 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 £120.4m including accrued interest (2015: £124.2m).

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.


Overview



59O



ents


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. All other transactions and balances with related parties of the Group have been detailed below.

Transactions with BridgepointMonitoring fees of £0.2m (2015: £0.1m) due to Bridgepoint Partners LLP were incurred during the financial year and £0.2m (2015: £0.1m) remains outstanding at Balance sheet date following a cash payment of £0.1m in relation to the prior period.

Transactions with Bridgepoint portfolio companiesThe Group engages Pepco Services LLP to complete procurement reviews. The Group has agreed to pay 20% commission on any cost savings made as a result of the review. During the year £0.1m was paid in commission (2015: £nil).

The Group enters into forward exchange contracts with TTT MoneyCorp Limited to fund purchases made in euro. At balance date there were two contracts in place for the purchase of €0.4m at an average exchange rate of 1.34 (2015: €2.5m at an average exchange rate of 1.38).

Azzurri MidCo 1 Limited Loan NotesIn addition to the principal investment made by and on behalf of the Bridgepoint Funds, the “Azzurri Equity Plan” allows eligible employees and directors to purchase Azzurri MidCo 1 Limited loan notes at cost. As detailed in note 16, interest accrues at 12% and is capitalised into the principal on an annual basis.

25 Business combinationsDuring the period, Azzurri Central Limited incorporated CDM Group Limited and its subsidiary CDM Holdco Limited to acquire 100% of the share capital in CDM Trading Limited (formerly Tenfour Ventures Limited). The acquisition took place on 8 July 2015 for total consideration of £13.2m. Azzurri Central Limited has a 63.5% interest in CDM Group Limited. The remaining 36.5% is held outside the Group.

The results of the trading company were included within the Group results from the date of acquisition. The revenue from CDM Trading Limited included in the consolidated profit and loss account was £6.9m. Had the Group owned the company for the full period revenues would have been £7.1m.

The goodwill arising on acquisition was £9.6m and the directors have estimated the useful life of goodwill to be 10 years. This is based on a review of the expected future cash flows and the fact that Coco di Mama will continue to have growth opportunities in the long term future.

The book values of the assets and liabilities have been taken from the management accounts of CDM Trading Limited on 8 July 2015 (the date of acquisition). The following table summarises the consideration paid by the Group, the fair value of assets acquired and liabilities assumed.

Consideration at 8 July 2015 £m

Proceeds 12.7Directly attributable costs 0.5 Total consideration 13.2


Overview



60



25 Business combinations continuedFor cash flow disclosure purposes the acquisition amounts are disclosed as follows:

£m

Cash consideration 7.3 Directly attributable costs 0.5 Total cash paid 7.8Less:Cash and cash equivalents acquired (0.1)Net cash outflow 7.7

Recognised amounts of identifiable assets acquired and liabilities assumed

Book value

£mAdjustments

£m

Fair value

£m

Tangible fixed assets 1.1 – 1.1 Debtors 0.6 – 0.6 Cash 0.1 – 0.1 Creditors (0.6) – (0.6)Deferred tax liabilities – (0.5) (0.5)Intangible assets – brands – 2.9 2.9 Net assets acquired 1.2 2.4 3.6 Goodwill 9.6 Consideration 13.2 Consideration satisfied by: Cash 7.8 Shareholder loan notes 5.4 Total 13.2

Overview



61O



ents



26 Non-controlling interestsGroupThe movement in non-controlling interests was as follows:

26 June 2016£m

28 June 2015£m

At 28 June 2015 – – Total comprehensive income attributable to non-controlling interest 0.9 – At 26 June 2016 0.9 –

27 Post balance sheet events There were no material events within the Group that occurred after the period end date.

28 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.

Overview



62



29 Principal subsidiary undertakingsThe subsidiary undertakings of the Group for the period ended 26 June 2016 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%Azzurri Restaurants Ireland Limited Restaurant operations ROI 100%8 Slices Limited Restaurant operations UK 70%CDM Group Limited Management Services UK 63.5%CDM Holdco Limited Holding Company UK 63.5%CDM Trading Limited (formerly Tenfour Ventures Limited) Restaurant operations UK 63.5%

The registered addresses for all UK companies are 3rd Floor Capital House, 25 Chapel Street, London, NW1 5DH.

Azzurri Restaurants Ireland Limited’s registered address is 25-28 North Wall Quay, Dublin 1.

Overview



63O



ents



30 Transition to FRS 102This is the first year the Group has presented its results under FRS 102. The last financial statements under UK GAAP were for the period 3 July 2014 to 28 June 2015. The date of transition to FRS 102 was 1 July 2014. Set out below are the changes in accounting policies which reconcile profit for the period ended 28 June 2015 and total equity as at 3 July 2014 and 28 June 2015 between UK GAAP as previously reported and FRS 102.

Upon transition to FRS 102, there is no effect on the Company balance sheet, profit and loss account or statement of changes in equity, therefore no reconciliation has been provided.

a) Balance sheetYear ended 28 June 2015

Note

As previously stated

£m

Effect of FRS 102

transition£m

Other adjustments

£m

FRS 102 (as restated)

£m

Fixed assets Intangible assets A 153.9 23.5 – 177.4 Tangible assets C 130.5 (0.2) – 130.3 284.4 23.3 – 307.7 Current assets Inventories 6.9 – – 6.9 Debtors B, C 9.7 0.3 – 10.0 Cash at bank and in hand 4.8 – – 4.8 21.4 0.3 – 21.7 Creditors: amounts falling due within one year C (40.0) – (0.3) (40.3)Net current liabilities (18.6) 0.3 (0.3) (18.6)Total assets less current liabilities 265.8 23.6 (0.3) 289.1 Creditors: amounts falling due after more than one year (264.2) – – (264.2)Provisions for liabilities D (11.1) (21.6) – (32.7)Net liabilities (9.5) 2.0 (0.3) (7.8)Capital and reserves Called up share capital – – – – Share premium account 1.0 – – 1.0 Accumulated losses (10.5) 2.0 (0.3) (8.8)Total equity (9.5) 2.0 (0.3) (7.8)

Overview



64



30 Transition to FRS 102 continuedb) Profit and loss account

Year ended 28 June 2015

Note


£m

Effect of FRS 102

transition£m

Other adjustments

£m


£m

Group turnover 93.9 – – 93.9 Cost of sales C (77.9) – (0.1) (78.0)Gross profit 16.0 – (0.1) 15.9Administrative expenses A (10.6) 1.9 (0.2) (8.9)Exceptional costs (4.7) – – (4.7)Total administrative expenses (15.3) 1.9 (0.2) (13.6)Group operating profit 0.7 1.9 (0.3) 2.3Loss on disposal of tangible assets (0.3) – – (0.3)Profit on ordinary activities before interest and taxation 0.4 1.9 (0.3) 2.0Net finance costs B (10.6) 0.1 – (10.5)Loss on ordinary activities before taxation (10.2) 2.0 (0.3) (8.5)Tax on loss on ordinary activities D (0.4) – – (0.4)Loss for the financial period (10.6) 2.0 (0.3) (8.9) Other comprehensive income: Foreign exchange translation reserve 0.1 – – 0.1 Total comprehensive expense for the period (10.5) 2.0 (0.3) (8.8)

Overview



65O



ents



30 Transition to FRS 102 continuedc) Statement of changes in equity

Note


£m

Effect of transition

£m

Other adjustments

£m


£m

Balance as at 3 July 2014 – – – –Loss for the year A, B, C, D (10.6) 2.0 (0.3) (8.9)Other comprehensive income 0.1 – – 0.1 Issue of share capital 1.0 – – 1.0 Balance as at 28 June 2015 (9.5) 2.0 (0.3) (7.8)

A Restatement of prior acquisitionsAt 28 June 2015, additional brand names and trademarks with a net book value of £108.1m has been recognised. This together with related deferred tax liabilities of £21.6m resulted in a reduction in the net book value of goodwill by £86.5m to £70.8m. There was a reduction in the amortisation expense for the year of £1.9m. The overall impact was an increase to net assets at 28 June 2015 of £1.9m.

B Derivative financial instrumentsFRS 102 requires derivative financial instruments to be recognised at fair value. Previously under UK GAAP the Group did not recognise these instruments in the financial statements. Accordingly, the Group has recognised the interest rate swaps it holds and an asset of £142,000 has been recognised. The corresponding entry is a gain to finance costs of £142,000 for the period ended 28 June 2015.

C Rent free period for operating leases and other adjustmentsUnder previous UK GAAP operating lease incentives, including rent free periods and lease premiums, were spread over the shorter of the lease period or the period to when the rental was set to a fair market rent. FRS 102 requires that such incentives be spread over the lease period. The Group has taken advantage of the exemption for existing leases at the transition date to continue to recognise these lease incentives on the same basis as previous UK GAAP. Accordingly the FRS 102 accounting policy has been applied to new operating leases entered into since 1 July 2014. The rent free period adjustment has resulted in an increase of £24,000 in the operating lease charge in the period ended 26 June 2016, with a corresponding increase in the accrued lease liability. The lease premium adjustment has resulted in an increase of £2,000 in the operating lease charge for the period ended 26 June 2016. The corresponding entry was a decrease to tangible assets of £150,000 and increase to debtors of £148,000.

The other adjustment relates to the requirement to record a holiday pay accrual for head office staff. This resulted in an opening balance adjustment of £235,000 being recognised into the prior period reserves.

Overview



66



30 Transition to FRS 102 continuedD Deferred taxationThe impact on deferred tax as a result of the adjustments above was to increase the deferred tax liability at 28 June 2015 by £21.6m and decrease the profit and loss account charge by £28,000.

E Statement of cash flowsThe Group’s cash flow statement reflects the presentation requirements of FRS 102, which is different to that prepared under FRS 1. In addition the cash flow statement reconciles to cash and cash equivalents whereas under previous UK GAAP the cash flow statement reconciled to cash. Cash and cash equivalents are defined in FRS 102 as ‘cash on hand and demand deposits and short-term highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value’ whereas cash is defined in FRS 1 as ‘cash in hand and deposits repayable on demand with any qualifying institution, less overdrafts from any qualifying institution repayable on demand’. The FRS 1 definition is more restrictive.

Overview



67O



ents


Corporate directory

Directors James Pickworth Stephen Holmes Jason McGibbonKieran Pitcher Harvey SmythMichael Black

Company secretary James Pickworth

Registered office Third Floor Capital House25 Chapel StreetLondon NW1 5DH

Company number 09115901

Independent auditors PricewaterhouseCoopers LLP Chartered Accountants and Statutory AuditorsThe Portland Building25 High StreetCrawleyWest Sussex RH10 1BG

Designed and produced by Instinctif Partners www.creative.instinctif.com

Overview



http://www.creative.instinctif.com

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