M&C Report takes a closer look at the full-year update from Gondola Group, the operator of PizzaExpress, Zizzi, Ask and Byron, including its capital structure, international expansion plans, the repositioning of Zizzi, a new FD for Ask, a breakout year for Byron and its feeling that there are early signs of recovery in the broader economy.
Overview
The company said it delivered a strong performance in the 52 weeks to 1 July 2013, particularly in the second half of the year, with total sales up 4.2% to £604.2m which delivered a 6% increase in EBITDA to £112.2m. Trading EBITDA was up 12.3%.EBITDA margin stood at 18.6% against 18.2% the previous year.
Chief executive Harvey Smyth said: “During the year we consolidated our position as the market leader in casual dining, benefiting from the high quality and good value which our brands offer. Overall, there were signs of improvement in the consumer environment towards the end of the year on which we are well-positioned to capitalise.
The company grew its estate growth the year with 21 openings in the UK and 11 internationally (including Shanghai, Jakarta, Kuwait City, Bahrain, Jordan, Dubai and Mumbai). Its total estate now comprises 752 sites; 696 in UK & Ireland and 56 international).
Earlier this summer, Cinven, Gondola’s private equity group backer, was understood to be weighing up a sale of the business and was reported to have held preliminary discussions with bankers.
PizzaExpress
Smyth said that PizzaExpress had delivered a good performance, gaining significant trading momentum both in the UK and internationally. He said: “We saw positive momentum in the UK and international expansion accelerated, with 477 sites now in operation globally.
“13 new UK sites were opened during the year and we maintain a strong pipeline of domestic growth, targeting 15-20 new UK openings per annum going forwards. We have continued to develop our promotional activity and partnership campaigns. These have become more targeted and efficient and are delivering greater returns.”
During the year, innovation in the kitchen saw the introduction of the group’s first Leggera salad, which it said built on the success of its lower calorie Leggera pizza range. It also introduced Gluten Free options and added Calzone to its menu.
Smyth said: “PizzaExpress has already shown its ability to create value abroad and during the year we continued to invest in accelerating the growth of the international estate, and in preparatory work on other potential new markets. International openings during the year were: two sites in Shanghai; three sites in Jakarta; two sites in Kuwait City; Amwaj Island in Bahrain; Amman in Jordan; Dubai; and Mumbai.
“Our ambition is for PizzaExpress to become the number one Western Casual Dining brand in our chosen international markets and we are proving the viability of this ambition through the success of our 56 overseas sites. We are particularly encouraged that four of our top 20 PizzaExpress restaurants ranked globally by sales volume are in Asia.”
Zizzi
Smyth said that the brand repositioning of its 130-strong Zizzi brand is now substantially complete and the transformed estate is delivering “outstanding results in terms of both financial performance and customer feedback”.
He said: “Our innovative menus, distinctive and contemporary design and charismatic service create a highly compelling customer proposition, with an estate which is now well invested and performing strongly. Against this backdrop, we opened seven new sites this year and will continue to roll-out more sites across the UK in the year ahead.
During the year, the group appointed Johanna Fawcett, formerly of Kantar Retail, as its new marketing director. It has also lined up openings in Esher and Gloucester for later this year and will open at the new Wembley Designer Outlet next week.
ASK Italian
Smyth said it had been a year of progress for the 110-strong ASK Italian, with the business continuing to make “good headway in its transformation programme to establish an updated and more differentiated customer offering”.
He said: “During the year, we undertook a review of the estate to focus on those restaurants which will perform most successfully under the new ASK Italian model. As a result, we slimmed the estate down so that ASK Italian now has a sustainable platform for medium and long-term performance.”
Earlier this year, Jim Pickworth, who has been Zizzi’s finance director since 2007, also took on the role of FD at ASK, replacing Gavin Adair, who joined Wahaca as head of development.
The Stephen Holmes-led chain, is thought to have taken a unit in Manchester city centre as it looks to concentrate its future expansion plans on securing sites in major cities as part of handful of openings for the brand over the next few years. It is believed to have secured a site at the former Lloyds development in the city’s Kings Street, which is due to be completed by the end of this year.
Earlier this year, it opened a c4,600sq ft site at the former Barclays Bank building in the Birmingham’s New Street and is understood to have secured a further opening in Swindown for 2014.
Byron
Smyth said that this year was a break-out year for Byron, during which it “built on its rapid and significant success in London with the opening of regional sites in Oxford, Cambridge, Manchester and Liverpool - all of which are trading strongly”. M&C Report understands that the Liverpool site is achieving weekly sales figures of c£50k.
A total of 10 new sites were opened during the year and Smyth said that this rapid pace of growth is set to continue with a well advanced pipeline of openings for the current year.
Byron, recently secured a site in Milton Keynes for an opening later this year as it moves closer to reaching its 45-site target by the end of 2013. It has continued to strengthen its pipeline since it was taken off the market in June. It is thought that the group was taken off the market after the company’s valuation of the business was not matched.
It has secured a further site in London, in Shoreditch, at the Avant Garde development. It also secured the former Slug & Lettuce at O2 for an opening this December and the Ozer restaurant and bar in Langham Place for an opening next March, with an outlet in the Strand set to begin trading in early 2013. Sites in Leeds and Bristol are also thought to be under consideration.
To support this expansion programme, the Byron management team has been strengthened with the appointment of full time finance and property directors, Simon Boston and Marc Balding, respectively.
Investment
During the year, Smyth said that the company maintained its commitment to investing in its brands for their long-term, sustainable growth.
He said: “We opened a total of 21 new sites in the UK during the year, in addition to investing in 10 conversions between brands to deliver better returns. We also invested significantly in the quality of our estate as part of our programme of brand transformations and refurbishments, ensuring that our restaurants remain stylish and inviting environments for our customers.”
Capital Structure
Since the period end, the company extended its existing debt facilities to January 2018. Smyth said: “This extension demonstrates the strength of our business and allows us the additional financial flexibility to continue investment in our strategy for growth both in the UK and internationally. The long term financial stability of the group was also underpinned by our repayment of a further £22m of debt, taking our total repayments to £82m and reducing our leverage to below 4.3x EBITDA.”
Outlook
Smyth said: “There are encouraging early signs of recovery in the trading backdrop and we are well-positioned to benefit from any further upturn in market conditions. Overall, we are confident of achieving further significant progress in the current year and the long-term growth drivers of our business remain compelling.”
