Annual Report 2014 Contents Overview Business review Governance Financial statements 1 Outstanding brands In 2013/14, Gondola Group remained the market leader in the UK casual dining sector, operating PizzaExpress, Zizzi and ASK Italian, together with the smaller brands of Milano (PizzaExpress’ brand in Ireland) and Kettner’s. The Group employed approximately 15,000 people, serving over 74 million meals a year (42 million in restaurants and a further 32 million retail) in the UK and Ireland alone. It had an estate in the UK and Ireland of over 680 restaurants, with an expanding global presence of 749 restaurants in 14 territories. Gondola’s restaurants are positioned to offer a memorable eating out experience and great value for money, with typical spend per head (including value added tax) ranging from £15 to £19. Gondola’s distinct brands have broad appeal and lend themselves to different occasions. Its estate of restaurants trade successfully in a variety of location types, from high street and local neighbourhoods, to shopping centres and retail and leisure parks. Following the end of the financial year, which is reviewed in this Annual Report, the Group sold the PizzaExpress business. Further details are provided on pages 4 and 63. References throughout this report to PizzaExpress, and to the inclusion of it within Group information, therefore relate to the period under review when it was owned by the Group. www.askitalian.co.uk www.pizzaexpress.com www.zizzi.co.uk Overview Business review Governance Financial statements 2 2014 highlights 5 PizzaExpress 21 Board of Directors 29 Consolidated profit and 34 Consolidated reconciliation 3 Gondola at a glance 10 Zizzi 22 Strategic report loss account of movements in 4 Chairman’s statement 14 ASK Italian 23 Directors’ report 30 Consolidated statement shareholders’ deficit 18 Financial review 26 Corporate governance report of total recognised gains 34 Company reconciliation 28 Independent auditors’ report and losses of movements in 31 Consolidated balance sheet shareholders’ funds 32 Company balance sheet 35 Notes to the financial statements 33 Consolidated cash flow statement 66 Corporate directory Gondola Group Limited Annual Report and Accounts 2014 2014 highlights Contents Overview Business review Governance Financial statements 2 Financial summary Business highlights Trading history Total sales (comparable 52 week basis)3 Total sales (excluding Byron) 6.5% compound annual growth in sales in the last eight years 1 25 2013/14 613 new restaurants opened, continuing expansion +5.6% 2012/13 604 £594.7m across our brands2 2011/12 580 2010/11 570 2009/10 545 Restaurant sales (excluding Byron) 2008/09 509 2007/08 462 1 £100m 2006/07 431 +5.5% successful sale of Byron, developed from a start-up £ 579.3m in 2007 to a substantial, rapid growth business 2005/06 395 EBITDA (comparable 52 week basis)3,4 4.0% compound annual growth in EBITDA EBITDA in the last eight years 2013/14 119 2012/13 112 3,4 International £119.1m +6.1% Beijing launched as PizzaExpress’ 500th restaurant globally 2011/12 106 in addition to 14 international (franchise and JV) openings 2010/11 115 2009/10 112 2008/09 106 Net operating cash flow 2007/08 103 2006/07 96 £80m 2005/06 91 +9.9% repayment of our mezzanine debt, reducing our leverage 1 Percentage growth shown on a comparable basis, excluding Byron sales from £125.5m both financial years given its sale during 2013/14. In 2012/13, Byron had to below 3.5x EBITDA sales of £41.0 million. The part year sales in 2013/14 were £18.6 million 2 Excluding a further two openings which were conversions between brands 3 References to 2005/06 and 2006/07 results or percentage changes derived from them are pro forma as these figures include trading which precedes the change of ownership of the business and its structure on 22 December 2006. Comparable 52 week basis shown for 2011/12 which was a 53 week financial year. 2013/14 total sales and EBITDA include Byron results up to date of sale of 12 November 2013, whereas 2012/13 includes full year results 4 EBITDA is defined as detailed on page 18 Gondola Group Limited Annual Report and Accounts 2014 Gondola at a glance Contents Overview Business review Governance Financial statements 3 Our brands With its roots in Soho, this iconic brand was founded Zizzi is a stylish and individual brand, and its innovative Recently transformed with a fresh new look and outstanding by a passionate foodie in 1965, and has been pioneering approach leads the way in casual dining. Italian menu, ASK Italian is on a journey to bring Italy to life pizza on the high street ever since. in all its restaurants. Restaurants 437 UK + Ireland Restaurants Restaurants 135 109 505 globally New this year 19 UK New this year 6 New this year 1 15 International Employees 9,900 Employees 3,000 Employees 2,200 Average spend per head £15 Average spend per head £19 Average spend per head £19 To read more about PizzaExpress restaurants please To read more about Zizzi restaurants please go to pages 10-13 To read more about ASK restaurants please go to pages 14-17 go to pages 5-9 Gondola Group Limited Annual Report and Accounts 2014 Chairman’s statement Contents Overview Business review Governance Financial statements 4 In December 2013, we sold Byron to Hutton and the company’s first wholly-owned The ASK Italian repositioning has continued, Collins Partners for approximately £100 million. international site. I’m delighted to say that it is with the estate benefiting from the refurbishment In the six years since it was launched, Byron has trading exceptionally well, which is a testament of a further 38 restaurants during the year, and become a major player in the UK casual dining to the success the brand is already enjoying in more earmarked for transformation in 2014/15. sector, with 35 restaurants at the time of sale China where it now has a total of 22 restaurants. This programme, delivering a fresh, Milanese- and a fast growing presence through expansion inspired look and feel and updated menu has in major cities around the country. The respective teams at Byron and PizzaExpress helped make ASK Italian a stronger brand, which have done a fantastic job developing brands that combined with operational initiatives has resulted Following on from this, our iconic heritage are loved by legions of fans; they leave Gondola in a very positive financial performance. brand, PizzaExpress, was successfully sold to with our thanks and best wishes for the future. Hony Capital for approximately £900 million. Looking ahead, our strategy will be to continue The deal completed just after year end. With Meanwhile, this financial year has also seen strong driving profitable growth by focusing on our core the brand having firmly been a part of Gondola performances from our two remaining brands, values – namely delivering outstanding food and for the 2013/14 financial year, it would be remiss ASK and Zizzi. We have seen the combined service, as well as an outstanding experience to the of me not to highlight the momentous year it benefit in both of an increasingly positive backdrop customer, whilst offering good value for money. has enjoyed. in terms of consumer confidence, and also the This has been a transformational year for Gondola. further positive impact on trading momentum of Finally, we are fortunate to have exceptionally Our long-term strategy to build brands that PizzaExpress is now a global brand, and it continues our brand repositioning and operational initiatives talented and dedicated employees. I, and the deliver quality, value and service to customers to have strong momentum, with 505 restaurants within each business. Board, would like to thank all our colleagues for has led to strong growth and continuing trading globally (437 in the UK and Ireland, their hard work during what has been a very busy outperformance in a highly competitive market. and 68 internationally) at the end of the year. The evolution of the Zizzi brand to its updated and exciting year; we look forward to working Furthermore, our ability to create significant positioning was largely completed this year and with them, as we continue to build the business value by successfully implementing this strategy We celebrated an important milestone with the I’m pleased to report that its 135-strong estate has in the year ahead. has been demonstrated through the sale of two opening of PizzaExpress Beijing; not only did it delivered a significant step change in performance. of our businesses to new owners. mark the brand’s 500th opening worldwide, but it It is a brand that is in great health and we are Chris Woodhouse is also the first PizzaExpress in China’s capital city, very confident of accelerating growth still further. Chairman Our strategy Deliver Expand Develop Deliver growth in profits from the Expand the estate through the roll-out of Develop other growth opportunities, Gondola has always existing estate our key brands including new concepts and other maintained a simple – we focus on ‘restaurant basics’ to deliver – we have maintained strong momentum revenue streams quality and value to our customers in our openings programme despite the – the growth of the BYRON business strategy to: – we are using increasingly sophisticated economic backdrop in recent years is a great example marketing techniques to engage with – the expansion of PizzaExpress’ our customers international business has also been – we proactively manage our cost base and very successful working capital to maintain or improve margins