Papa Topco Limited Annual Report and Financial …...Papa Topco Limited Strategic Report for the 52 weeks ended 1 January 2017 (contmued) Outlook and future developments ft is our

Company number 09277801

Papa Topco Limited

Annual Report and Financial Statements

52 Weeks Ended

1 January2017

Papa Topco Limited

Annual Report and Financial statements for the 52 weeks ended 1 January 2017

Contents Page no

Directors and Advisers 3Strategic Report 4Report of the Directors 7Independent Auditors’ Report to the members of Papa Topco Limited 10Consolidated Statement of Comprehensive Income 12Consolidated Statement of Changes in Equity 13Company Statement of Changes in Equity 13Consolidated Statement of Financial Position 14Company Statement of Financial Position 15Consolidated Statement of Cash Flows 16Company Statement of Cash Flows 17Notes to the Financial Statements 18

2

Papa Topco Limited

Annual Report and Financial statements for the 52 weeks ended 1 January 2077

Directors and Advisers

Directors

P James

A Halpern

Registered OfficeJohnston House6 Johnston RoadWoodford GreenEssex

lG8 OXA

Company number09277801

Independent AuditorPricewaterhouseCoopers LLPThe Portland Building25 High StreetCrawleyRH1O 1BG

3

Papa Topco Limited

Strategic Report for the 52 weeks ended 1 January 2017

The Directors present their Strategic Report for Papa Topco Limited (the ‘Company) and its subsidiaries (together “theGroup’) for the 52 weeks ended 1 January 2017 (2015: 62 weeks ended 3 January 2016).

Ownership

The Company was set up by TPG Capital to acquire (through its intermediate holding companies) a 100% equity interest inPrezzo Limited (“Prezzo”), the main trading subsidiary in the Group. The investmentin Prezzo is held within the portfolio ofTPG Partners Vt, L.P. and the ultimate controlling party is TPG Advisors Vl-AIV, Inc.

TPG Capital

TPG is a leading global private investment firm, founded in 1992, with over $80 billion in assets under management andoffices in San Francisco, Fort Worth, Austin, Dallas, Houston, New York, Bejing, Hong Kong, Istanbul, London, Luxembourg,Melbourne, Moscow, Mumbai, Sao Paulo, Singapore and Tokyo. TPG have investment platforms across a wide range ofasset classes, including private equity, growth venture, real estate, credit and public equity.

TPG Partners VI, L.P. is part of the TPG Capital platform, which has more than two decades of partnering companies throughPrivate Equity investments. The firm has specialist knowledge across a wide range of industries embedded in its specialistteams and has a strong track record in providing capital, expertise and support to rapidly growing businesses like Prezzo.

Investor Board

The investment is monitored by the Directors of the Company and the appointed Directors of the intermediate holdingcompany, Prezzo Holdings Limited as set out below:

Directors

Dirk Eller

Dirk Eller is a Partner at TPG Capital based in London, where he works in the Operations group and focuses onconsumer and retail as well as technology, media and service sectors in Europe. Prior to joining TPG in 2015, Dirkserved as Chief Financial Officer of Clear Channel Outdoor, the global outdoor advertising leader with operations in theUS, Europe, Asia and Latin America. Dirk received a bach&or of business administration, Magna Cum Laude, fromTexas A&M University and an MBA from Harvard Business School.

Abel Halpern

Abel Halpern is a Partner at TPG Capital, based in London and has been affiliated with TPG since 1994. He leadsTPG’s consumer-facing enterprise group in Europe, and is also active in the firm’s global activities in emergingmarkets, commodities and infrastructure. Abel received his MBA from Harvard University and serves on the Boards ofthe Yale Jackson Institute for Global AIf airs and the Yale School of Music, among other activities.

Peter James

Peter James is a partner at TPG Capital and is based in London, where he focuses on TPG’s consumer and retailinvestments across Europe. Prior to joining TPG in 2010, Peter worked at Merrill Lynch International in its CorporateFinance & Restructuring team. Peter received a Masters from Sciences Po Paris and his BSc with Honours from theUniversity of Bath.

Jon Hendry Pickup

Jon Hendry Pickup was appointed Chief Executive Officer of the Prezzo Group during the period. Jon has twenty yearsof retail and consumer experience, having most recently served as Chief Operating Officer at Travelodge HotelsLimited, and prior to that, as the Operations Director for Tesco PLC in the Czech Republic and Slovakia.

The Investor Board meets formally in each quarter of the year, but receives monthly updates from the Executive Committeedetailing the financial performance and financial position of the business, together with progress on the Group’s strategicinitiatives.

The Executive Committee, which includes the Chief Executive Officer together with department heads from Operations andeach of the key support functions within the business, is the principal decision making body for the trading operations of theGroup.

Introduction

The principal activity of the Group is to operate branded restaurants in Ihe UK and Republic of Ireland.

Financial structure

The Company is the ultimate UK parent company in which the results of the Company and all its subsidiaries areconsolidated. The Company has share capital of £1.8m (3 January 2016: £1.8m), formed of iBm (3 January 2016: 1.8m)ordinary £1 shares.

4

Papa Topco Limited

Strategic Report for the 52 weeks ended 1 January 2017 (continued)

Financial structure (continued)

Strong financial capital management is an integral part of the strategy to achieve the Group’s growth ambitions, ensuring thatthere is sufficient liquidity to meet all obligations as they become due.

The Group has an external syndicated bank loan of £130m and a £194.lm shareholder loan from TPG Advisors Vl-AIV, Inc.In addition, there is a £25m revolving credit facility which remained undrawn at the end of the period.

Further information on the Group’s capital structure is included in note 31 to the financial statements.

Business model and strategy for growth

The Group’s principal activity is the operation of restaurants positioned in the smart but affordable segment of the UK andRepublic of Ireland casual dining market.

Our principal objective in growing our business is to maximise value for our shareholders by developing an enlarged operatingestate of restaurants across the UK and Republic of Ireland which will generate stable, predictable profit and cash flowgrowth. We seek to achieve this by maintaining a steady and manageable rate of new openings, while still focusing stronglyon the day to day performance of our existing operations and brands.

The Directors believe that our emphasis on providing quality dishes at affordable prices, in attractive and comfortablesurroundings means that the business is well-positioned to achieve further growth. Our strong internal cash generation meansthat going forward we will be able to fund expansion each year without recourse to external financing.

In addition to the quality of the food and drink we serve, we recognise that one of the most important aspects of our businessis the interface between staff and our guests and we therefore take steps to ensure that guest service levels are high. To thisend, we are committed to providing ongoing training and development to all levels of staff through the Prezzo TrainingAcademy. In addition, we continue to monitor and respond to customer feedback.

Key performance indicators

The key performance indicators f”KPls”) used by management to monitor and measure performance are as follows;

- Total revenue growth (%);

- Gross profit margin (%);

- Return on investment (%);

- Adjusted operating profit growth and margin f%); and

• Number of new restaurants opened.

Each KPI is monitored by the Executive Committee against budget and forecasts for the current period, and againstperformance in the comparable period.

In addition, we also use a number of non-financial KPIs to measure our progress and success in other areas of the business.For example, we monitor staff turnover at all levels in the business in order to assess the success of our employeeengagement initiatives and we monitor guest feedback collected through a number of channels, both internally and externallyto ensure that we are doing all we can to promote guest satisfaction.

Business review

We Have continued to increase the representation of both our new and established brands across the UK and Republic ofIreland during the 52 weeks to 1 January 2017 via a continued programme of organic openings. At 1 January 2017 there were295 restaurants (3 January 2016; 276) in the estate.

For the 52 weeks ended 1 January 2017, revenue increased 12.7% to £219.7m (62 weeks ended 3 January 2016: £195.Om),driven by full year contribution following acquisition. Adjusted loss before tax (see note 8) increased to £77.5m (62 weeksended 3 January 2016: £2.8m), driven, mainly by an increase in finance costs and non-trading items.

Gross (or restaurant) profit increased to £343m (62 weeks ended 3 January 2016: £32.Om) with gross profit margin reducingto 15.6% (62 weeks ended 3 January 2016: 16.4%), reflecting an increase in regulatory cost pressures incurred in the period.

Operating profit excluding non-trading items increased to £22.6m (62 weeks ended 3 January 2016: £21.4m). Operating profitmargin (excluding non-trading items) was 10.3% (62 weeks ended 3 January 2016: 11.0%) with administration expensesincreasing to £11 .7m (62 weeks ended 3 January 2016: £1 0.6m).

The Group routinely reviews the casual dining market and wider economic environment, including regulatory and input costinflation, and the ongoing profitability of our core restaurants. Consequently, the Group completed an estate review resultingin the decision to dispose of a number of uneconomic restaurants.

This process has led to an impairment of tangible fixed assets of £12.Bm (2015: £3.5m), impairments to the Chimichangabrand and acquired goodwill of £54.2m (2015: ENil) and a provision for onerous teases of £2.6m (2015: £0.6m).

5

Papa Topco Limited

Strategic Report for the 52 weeks ended 1 January 2017 (contmued)

Outlook and future developments

ft is our expectation that hospitality will continue to be a growth sector in the UK and Republic of Ireland economies,continuing to attract increasing levels of investment and competitiveness.

However, the casual dining market is currently facing a turbulent time as consumer, competitive and economic headwindsintensify.

During 2017 the sector has witnessed declining consumer visit frequencies, rising cost pressures and in some locations overexpansion. These factors are creating a downward pressure on profit margins due to intensified competition, discounting andincreased operating costs from the national living wage, apprenticeship levy, business rates and input inflation.

The Group is currently facing all these challenges and is working hard to grow sales through an improved customer journey,value for money proposition and new customer channels.

In recognition of the challenging outlook the Group has undertaken as estate review which has resulted in the activemarketing of a number of uneconomic restaurants and reduced the number of planned new openings to 8 in 2017.

The short-medium outlook for the casual dining market for restaurants is expected to be challenging, but brands relevant tothe consumer will continue to outperform. The focus for the Group is to improve its current brand positioning and we areencouraged by the early response to our new look and feel’ Prezzo restaurants.

Principal risks and uncertainties

The Board of Directors (the ‘Board’) has the principal responsibility for identifying the principal risks which the business facesand for developing appropriate policies to manage those risks.

The following are judged to be the principal risks affecting the Group’s operations, but it should be noted that this is not anexhaustive list and the Group has policies and procedures i place to address other areas of risk facing the business.

UK macro-economy and competition in the UK casual dining marketWe anticipate that the casual dining market will continue to be a growth sector, attracting continued investmentand will therefore become increasingly competitive. The strength of the UK economy is correlated to consumerdiscretionary spend and we are mindful that there may be unforeseen consequences of the BREXIT vote on theUK economy.

The disposable income of customers and their leisure activity are affected by changes in the general economicenvironment and we expect this to become more challenging as real incomes fall. The Group regularly reviews itsproduct offering and engages with customers to ensure it provides a value for money offering and meets customerneeds.

Market and regulatory cost pressure

The introduction of the UK National Living Wage from April 2018 and the impact of changes in business rates fromApril 2017 were the latest in a series of regulatory driven cost increases. We have sought to mitigate theseincremental cost through increased locus on labour productivity and supply chain efficiencies.

Employee recruitment and retention

We regularly review our employment policies and benchmark remuneration against the market. We are alsocommitted to providing high quality training and development programmes.

Quality control and health & safetyWe have a comprehensive system of policies and procedures in place to ensure compliance with all relevantlegislation and best practice, with a dedicated Health and Safety team who ensure that the highest standards aremaintained.

Reputation

We aim to deliver to the highest standards of guest experience and recognise that this encompasses not onlyproviding quality food and drinks in attractive surroundings, but efficient and attentive service. We continue toinvest in our dedicated guest services team and infrastructure, monitoring customer service levels across all ourrestaurants with the aspiration to drive continuous improvement.

Supply chainDue to the nature of our business, we have a dedicated team of food technician and supply chain professionals,who monitor supplier performance against service level agreements.

This strategic report was approved by the Board on 29 September 2017.

By Order of the Board

Director6

Papa Topco Limited

Report of the Directors for the 52 weeks ended 1 January 2017

The Directors present their report together with the audited consolidated financial statements for the 52 weeks ended 1January 2017.

Principal activities

The Groups principal activity is the operation of restaurants positioned in the smart but affordable segment of the UK andRepublic of Ireland casual dining market.

Results and dividends

The Consolidated Statement of Comprehensive Income shows the loss for the financial period of £71.lm (62 weeks ended 3January 2016: £12.7m).

The directors are unable to recommend the payment of a dividend (62 weeks ended 3 January 2016: £Nil).

Directors

The directors of the Company during the period and through to the date of approving this report were:

C Bode Appointed 19 Jun 2015 Resigned 7 Oct 2016I Viola Appointed 5 Nov 2014 Resigned? Oct 2016P James Appointed 7 Oct 2016A Halpern Appointed 7 Oct 2016

Financial Instruments

On 10 February 2015, the Group raised finance by way of a bank facility for a total of £155m of which £130m is currentlydrawn down by its subsidiary, Prezzo Holdings Limited.

The Group has put in place interest rate swap contracts to fix interest on 80% of the senior loan facility and consequently itwas exposed to interest rate risk only in so far as changes in base rates affect the unhedged element (20%) of its borrowings.Further information on financial instruments and the risks facing the business is contained in notes 25 and 31 to the financialstatements.

The shareholder loan provided by TPG Advisors Vt-Al V. Inc. carries a fixed interest coupon of 10%, which is not cash settledbut included in the outstanding loan balance until such lime as the Loan is repaid.

Employee engagement

People are at the heart of everything we do. With passion and attention focused on giving our guests the best possibleexperience, we believe that the same should apply to our staff. We nurture talent and reward excellence at work every step ofthe way.

All of our staff begin with three days of inclusive, hands-on training at one of our academies across the UK. Irrespective ofwhat experience they have or their role they are immersed in all things Prezzo, from cooking and product knowledge todelivering great service. We promote from within and as careers develop, there are management training courses andleadership programmes.

Our apprenticeship programme offers a fantastic introduction to a career in hospitality. Incorporated into our Prezzo training,it allows us to offer nationally recognised qualifications alongside valuable practical experience.

All of our employees have an annual performance review and we believe in and encourage two way communication. Teammembers have a weekly staff briefing and key communications flow through via our weekly email newsletters. All employeesare given a voice through our Junior Board, a group of people in different roles across our restaurants and Head Office whodiscuss feedback and issues and then voice those to the senior management team.

Every year we gather together all our store managers and our Operations and Support learns to share important informationon key strategic and business initiatives and also to receive feedback from across the Group. It also gives the chance tonetwork and recognise success.

Our workforce is incredibly diverse and we have an equal opportunities policy in place which we are committed to applyingthroughout all areas of employment, recruitment and selection, training, development, terms and conditions and promotion.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.

While we do not see concerns over Human Rights as a material issue for the business, we are determined to ensure thatemployees at all levels in the business are treated fairly and with dignity and respect. We do not tolerate harassment orbullying in any shape or form. Procedures are in place to respond to accusations of workplace discrimination, harassment andvictimisation. An effective employee grievance procedure is in operation and the policy is properly communicated to ourpeople.

Applications from disabled persons are given full consideration providing the disability does not seriously affect theperformance of their duties. Such persons, once employed, are given appropriate training and equal opportunities. Continuedemployment and retraining is available to any employee who becomes disabled whilst employed by the Group.

Papa Topco Limited

Report of the Directors for the 52 weeks ended 1 January 2017 (Continued)

Gender diversity

There is good gender diversity across the business as a whole, with fem&es representing 48% (62 weeks ended 3 January2016: 48%) of the overall workforce at the end of the period. This balance can be further illustrated by the fact that 59% (62weeks ended 3 January 2016: 63%) of our restaurant general managers were female.

The Board also recognises that gender diversity at Board and Senior Management level is just as important and beneficialas diversity of skills and experience and would hope to see increased female participation at these levels in the future asthe Group continues to grow.

52 weeks ended 1 62 weeks ended 3January 2017 January 2016

Male Female Male Female

Company Direclor& 7 8Other senior managers2 9 2 4All employees 2123 1,936 2,115 1.919

Notes1, Company directors includes Directors across all the Group subsidiaries2 Other senior managers includes members of the Executive Committee who are not Directors

Environment

The Board believes that it is important that Prezzo contributes to protecting our environment through responsible operatingpractices. We continue to engage in projects to improve our performance in the following two key areas:

(i) Waste disposal and recycling

The Group has continued to work with a business partner to increase the proportion of our waste which is appropriatelysegregated and recycled. The Group has seen improvements across the estate, with increasing proportions of waste beingsegregated and recyled.

(ii) Energy usage reduction

Following the installation ot smart electricity meters across over 90% of our estate, continued investment in newtechnologies and data analysis, we continue to target meaningful reductions in our base energy usage.

In addition we continue to drive energy and other utility etficiencies in each ot our new restaurant openings by theinstallation of:

• Low energy lighting, using LED bulb technology;• Lights which switch-off automatically until reactivated by sensors in appropriate areas;• Improved controls to ensure that heating and ventilation systems operate only over appropriate hours; and• Controls over automated flushing to limit unnecessary water usage.

Community

We also believe in giving back to the community where we can.

(I) Apprenticeship scheme

Working in partnership with the Lifetime Training Group, we have established the Prezzo Apprenticeship scheme, offeringa diverse range of training opportunities that enable peoplQ of all ages and particularly school leavers to gain a solidfoundation which can lead to a rewarding career in the Hospitality Industry.

The courses available cover kitchen skills, food and beverage service, progressing through team leadership right up to thePrezzo Hospitality Diploma.

(ii) Charitable activities

For a number of years, we have supported the Fight For Life charity which supports young children in their battle againstcancer. For every Tropicana pizza that is sold, we make a donation of twenty-five pence and over the course of 2016, wewere able to raise over £67000 for this very worthy cause.

Going concern

The Directors have reviewed the cash flow forecasts of the Group for the 12 months from the date of approval of theseconsolidated financial statements and consider that there is sufficient cash and borrowing facilities to meet its liabilities asthey fall due for the foreseeable future. The Directors recognise that the trading environment will prove challenging andwhilst the Group is expected to maintain a strong liquidity position, covenant headroom has deteriorated and is likely toremain under pressure for the next 12 months, although the Group’s sensitised cash flow forecasts do not indicate acovenant breach.

8

Papa Topco Limited

Report of the Directors for the 52 weeks ended 1 January 2017 (Continued)

Going concern (continued)

In making their assessment of going concern, the Directors have taken into account forecast trading cash flows andcovenant compliance under the bank facilities. Taking these factors into account, the Directors betieve it is appropriate toprepare the consolidated financial statements on a going concern basis.

Directors’ indemnity

Qualifying third party indemnity provisions as defined by the Companies Act 2006 were in force for the benefit of Directorsthroughout the period and up to the date of approval of the financial statements.

Statement of directors’ responsibilities

The Directors are responsible for preparing the Annual Report and the consolidated financial statements in accordance withapplicable law and regulation.

Company law requires the directors to prepare financial statements for each financiat period. Under that law the directorshave prepared the Group and Company financial statements in accordance with International Financial Reporting Standards(IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statementsunless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profitor loss of the Group and the cash flows of the Group and Company for that period. In preparing the financial statements, thedirectors are required to:

• select suitable accounting policies and then apply them consistently;

state whether applicable IFRSs as adopted by the European Union have been followed for the Group and Companyfinancial statements, subject to any material departures disclosed and explained in the financial statements;

• make judgements and accounting estimates that are reasonable and prudent; and

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

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s andCompany’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Companyand enable them to ensure that the financial statements comply with the Companies Act 2006.

The directors are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonablesteps for the prevention and detection of fraud and other irregularities.

The directors of the company are responsible for the maintenance and integrity of the ultimate parent company’s website.Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ fromlegislation in other jurisdictions.

Statement of disclosure of information to the auditor

In accordance with Section 418 of the Companies Act 2006, each director in office at the date of the Report of the Directors isapproved, confirms that:

(a) so far as the director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and

(b) he has taken alt steps that he ought to have taken as a director in order to make himself aware of any relevant auditinformation and to establish the Company’s auditor is aware of that information.

Independent Auditors

The independent auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolutionto re-appoint them will be proposed at the annual general meeting.

The Report of the Directors was approved by the Board on 29 September 2017.

By Order of the Board

P JamesDirector

9

Papa Topco Limited

Independent Auditors’ Report to the members of Papa Topco Limited

Report on the financial statements

Our opinion

In our opinion:

• Papa Topco Limited’s group financial statements and company financial statements (the financial statements’) give atrue and fair view of the state of the group’s and of the company’s affairs as at 1 January 2017 and of the group’s lossand the group’s and the company’s cash flows for the 52 week period (the period”) then ended;

• the group financial statements have been properly prepared in accordance with International Financial ReportingStandards (“IFRSs”) as adopted by the European Union;

• the company financial statements have been properly prepared in accordance with IFRSs as adopted by the EuropeanUnion and as applied in accordance with the provisions of the Companies Act 2006; and

• the financial statements have been prepared in accordance with the requirements ot the Companies Act 2006.

What we have audited

The financial statements, included within the Annual Report and Financial Statements (the “Annual Report) comprise:

• the Consolidated Statement of Financial Position and Company Statement of Financial Position as at 1 January 2017;• the Consolidated Statement of Comprehensive Income for the period then ended;

the Consolidated Statement of Changes in Equity and Company Statement of Changes in Equity for the period thenended;

• the Consolidated Statement of Cash Flows and Company Statement of Cash Flows for the period then ended; and• the notes to the financial statements, which include a summary of significant accounting policies and other expianatory

inlormation.

The financial reporting framework that has been applied in the preparation of the financial statements is IFRSs as adopted bythe European Union and, as regards the company financial statements, as applied in accordance with the provisions of theCompanies Act 2006, and applicable law.

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

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the Strategic Report and the Report of the Directors for the financial period for which the financialstatements are prepared is consistent with the financial statements; and

• the Strategic Report and the Report of the Directors have been prepared in accordance with applicable legalrequirements.

In addition, in light of the knowledge and understanding of the group, the company and their environment obtained in thecourse of the audit, we are required to report if we have identified any material misstatements in the Strategic Report and theReport of the Directors. We have nothing to report in this respect.

Other matters on which we are required to report by exception

Adequacy of accounting records and information and explanations received

Under 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’ remuneration

Under 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.

10

Papa Topco Limited

Independent Auditors’ Report to the members of Papa Topco Limited (continued)

Responsibilities for the financial statements and the audit

Our responsibilities and those of the directors

As explained more fully in the Statement of directors’ responsibilities set out on page 9, the directors are responsible for thepreparation 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 andInternational Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)). Those standards require us to comply with theAuditing 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 withChapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving These opinions, accept orassume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it maycome save where expressly agreed by our prior consent in writin.

What an audit of financial statements involves

We conducted our audit in accordance with ISAs (UK & Ireland). An audit involves obtaining evidence about the amounts anddisclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free frommaterial 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 beenconsistently 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 ourown 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 toprovide 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 withthe audited financial statements and to identify any information that is apparently materially incorrect based on, or materiallyinconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparentmaterial misstatements or inconsistencies we consider the implications for our report. With respect to the Strategic Reportand Report of the Directors, we consider whether those reports include the disclosures required by applicable legalrequirements.

129C.L

Rosemary Shapland (Senior Statutory Auditor)

For and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory AuditorsGatwick

29 September 2017

11

Papa Topco Limited

Consolidated Statement of Comprehensive Income for the 52 weeks ended 1 January 2017

Restated*

52 weeks ended 62 weeks ended1 January 3 January

2017 2016Note £‘OOO £000

Revenue 4 219,746 194,973

Cost of sales 5 (185,474) (162,990)

Gross profit 34,272 31983

Administration costs (83,832) (24,137)

Operating profit excluding non-trading Items 22,577 21,371

Non-trading items 8 (72,137) (13,525)

Operating (loss)/profit 9 (49,560) 7,846

Finance income 22 52Finance cost 10 (27,918) (24,221)

Loss before taxation (77,456) (16,323)

Income taxation 11 6,350 3,632

Loss for the period (71,106) (12,691)

Other comprehensive expense that maysubsequently be reclassified to profit orloss:

Cash 110w hedges (2,163) (320)

Deferred tax credit on cash flow hedge 472

Total comprehensive loss for thefinancial period attributable to ownersof the Company (72,797) (13,011)

‘The prior period cost of sales and administration costs figures have been restated, see note 5 for further details.

The Company has elected to take exemption under Section 408 of the Companies Act 2006, not to present the CompanyStatement of Comprehensive Income.

The notes on pages 18 to 36 are an integral part of these financial statements.

12

Papa Topco Limited

Consolidated Statement of Changes in Equity for the 52 weeks ended 1 January 2017

Group

Balance at 23 October 2014 -

Loss for the period -

Other comprehensive loss (320)Issue of new ordinary shares

Balance as at 3 January 2016 (320)

Loss for the period -

Other comprehensive loss -

Balance as at 1 January 2017 1,836

Company Statement of Changes In Equity for the 52 weeks ended 1 January

ShareCapital

£000

(1,691)

(2,011)

2017

OtherReserves

£000Company

Balance at 23 October 2014

Profit for the periodIssue of new ordinary shares

Balance as at 3 January 2016

Loss for the period

Balance as at 1 January 2017


OtherReserves

£000

ShareCapital

£000

1,836

1,836

AccumulatedLosses

£‘OOO

(12,691)

(12,691)

(71,106)

(83,797)

TotalEquity

£000

(12,691)(320)1836

(11,175)

(71,106)

(1691)

(83,972)

Accumulated Total

Losses Equity

£000 £000

- -. 6,660 6,660

1836 - 1,836

1,836 - 6,660 8,496

.- (55,090) (55,090)

1,836 - (48,430) (46,594)

13

Papa Topco Limited

Company number 09277801

Consolidated Statement of Financial Position as at 1 January 2017

Asat Asat1 January 3 January

2017 2016Note £000 £000

Non-current assetsIntangibles 12 153,426 207,671Property, plant and equipment 14 116,869 121,238Prepaid operating leases 15 5,462 6,181

275,757 335,090

Current assetsInventories 16 5,436 5,843Prepaid operating leases 15 6,121 5,664Trade and other receivables 17 10,696 10,589Cash and cash equivalents 18 16,574 22,058

38,827 44,154

Total assets 314,584 ‘ 379,244

Current liabilitiesTrade and other payables 19 (34,124) (42284)Current tax liabilities (106) (2,959)Provisions 20 (3,277) -

(37,507) (45,243)Non-current liabilitiesBorrowings 21 (319,720) (301490)Accruals 19 (9,432) (8,658)Deferred tax liabilities 22 (29,414) (34,708)Financial instruments 25 (2,483) (320)

(361,049) (345,176)

Total liabilities (398,556) (390,419)

Net liabilities (83,972) (11,175)

EquityShare capital 23 1,836 1,836Other reserves (2,071) (320)Accumulated losses (83,797) (12,691)

Total equity (83,972) (11,175)

The financial statements on pages 12 to 36 were approved by the Board of Directors and authorised for issue on 29September 2017 and signed on its behalf by:

P James

Director

14

Papa Topco Limited

Company number - 09277801

Company Statement of Financial Position as at 1 January 2017


2017 2016Note £000 £000

Non-current assetsInvestments 13 144,464 183,619

144,464 183,619

Current assetsTrade and other receivables 17 3 3Amounts owed by Group undertakings 17 3,077 1,499

3,080 1,502

Total assets 147,544 185,121

Non-current liabilitiesAmounts owed to Group undertakings 21 ff94,138) (176,625)

(194,138) (176,625)

Total liabilities (194,138) (176,625)

Net fliabilities)/assets (46,594) 8,496

EquityShare capital 23 1,836 1,836(Accumulated Iosses)/Retained earnings (48,430) 6,660

Total equity (46,594) 8,496

The financial statements on pages 12 to 36 were approved by the Board of Directors and authorised for issue on 29September 2017 and signed on its behalf by:

P JamesDirector

15

Papa Topco Limited

Consolidated Statement of Cash Flows for the 52 weeks ended 7 January 2077

52 weeks ended 62 weeks ended

1 January 3 January2017 2016

£‘OOO £000Note

Cash flows from operating activitiesNet cash inflow from operating activities 30 28,219 29,130Income tax paid (1,326) (2,207)

Net cash inflow from operating activities 26,893 26,923

Cash flows from investing activitiesFinance income 24 52Acquisition of subsidiaries, net of cash acquired - (292,566)Payments to acquire property, plant and equipment (21,431) (25,129)Proceeds from sale of property, plant and equipment 675 29,827

Net cash outflow from investing activities (20,732) (287,816)

Cash flows from financing activitiesIncrease in borrowings, net of issue costs 305,891Finance expense (11,645) (4,776)Issue of new ordinary shares 7,836Repayment of borrowing (20,000)

Net cash (outflow)/inflow from financing activities (11,645) 282,951

Net (decrease)fincrease in cash and cash equivalents (5,484) 22,058

Cash and cash equivalents as at 4 January 2016 22,058 -

Cash and cash equivalents as at 1 January 2017 16,574 22,058


16

Papa Topco Limited

Cash flows from operating activitiesNet cash inflow from operating activitiesIncome tax paid

Net cash intlow from operating activities

Cash flows from investing activitiesInvestment in subsidiaryDividend received

Net cash outflow from investing activities

Cash flows from financing activitiesIncrease in borrowings, net of issue costsIssue of new ordinary sharesRepayment of borrowing

Net cash Inflow from financing activities

Net increase in cash and cash equivalents

Cash and cash equivalents as at 4 January 2016

Cash and cash equivalents as at 1 January 2017


181,783- 1,836

(20,000)

- V 163,619

Company Statement of Cash Flows for the 52 weeks ended 1 January 2017

52 weeks ended1 January

2017£‘OOO


2016£000

(183,619)20,000

(163,619)

17

Papa Topco Limited

Notes to the Financial Statements for the 52 weeks ended 1 January 2017

1 General Information

Papa Topco Limited (incorporated on 23 October 2014) is a limited company domiciled and incorporated in the UnitedKingdom. The Company’s registered office is Johnston House, B Johnston Road, Woodlord Green, Essex 1GB 0XA.

The Group comprises Papa Topco limited and its subsidiaries, Papa Midco limited, Prezzo Holdings Limited, PrezzoLimited and Prezzo Restaurants Ireland Limited.

The Group operates restaurants within the UK and Republic of Ireland casual dining markets, principally under the Prezzoand Chimichanga brands.

2 Accounting policies

Statement of compliance

The consolidated and company financial statements have been prepared in accordance with International FinancialReporting Standards (“IFRS”) and IFRS Interpretations Committee f’ IFRS lCd) interpretations as adopted by theEuropean Union and the Companies Act 2006 applicable to companies reporting under IFRS.

Basis of preparation

The consolidated and company financial statements have been prepared on a going concern basis and under the historiccost convention, with the exception of financial derivatives, which are valued at fair value. Separate financial statementsare prepared for the parent company as a single entity as required by law. The consolidated and entity financialstatements are presented in pounds sterling and rounded to the nearest thousand pounds. The principal accountingpolicies, which have been applied consistently throughout the period are set out below.

Going concern

The Directors have reviewed the cash flow forecasts of the Group for the 12 months from the date of approval of theseconsolidated financial statements and consider that there is sufficient cash and borrowing facilities to meet its liabilities asthey fall due for the foreseeable luture. The Directors recognise that the trading environment will prove challenging andwhilst the Group is expected to maintain a strong liquidity position, covenant headroom has deteriorated and is likely toremain under pressure tot the next 12 months, although the Group’s sensitised cash flow forecasts do not indicate acovenant breach.

In making their assessment of going concern, the Directors have taken into account forecast trading cash flows andcovenant compliance under the bank facilities. Taking these tactors into account, the Directors believe it is appropriate toprepare the consolidated financial statements on a going concern basis.

Impact ot standards and interpretations on the financial period

The following new and revised Standards and Interpretations have been adopted in the current period. Their adoption hasnot had a material impact on the amounts reported in the financial statements.

Amendment to lAS 16 ‘Property, Plant and Equipment’ and lAS 38 ‘Intangible Assets’.

Amendment to IFRS 10 ‘Consolidated financial statements’ and lAS 28 ‘Investments in associates and joint ventures’

Impact of standards and interpretations in issue but not yet etfective

A number of new standards, amendments to standards and interpretations are not yet effective for Ihe period ended 1January 2017 and have not been applied in preparing these consolidated financial statements. The Directors are currentlyassessing the impact ot these standards, with the following changes being those that may potentially have a futureimpact:

IFRS 9 ‘Financial Instruments’ is effective from 1 January 2018.

IFRS 75 ‘Revenue from contracts with customers’ was issued in May 2014 and will apply to the Group from 1 January2018.

IFRS 16 ‘Leases’ will apply to the Group from 1 January 2019.

The Finance team are currently carrying out work to the changes to systems and procedures that will be required in orderto comply with IFRS 16, as it will have a significant impact on the calculation and presentation of assets and liabilitiesarising from short leasehold properties in the consolidated financial statements. It is not expected that any other newstandards or amendments will have a significant impact on the financial statements.

The Group has not early adopted any standard, amendment or interpretation.

(a) Basis of consolidation

The consolidated financial statements of the Group incorporate the financial statements of the Company and thoseentities controlled by the Company. The accounting reference date for the Group is 31 December and the consolidatedfinancial statements are prepared to the Sunday falling nearest this date each year.

18

Papa Topco Limited

Notes to the Financial Statements for the 52 weeks ended 1 January 2017 (continued)

2 Accounting policies (continued)

(b) Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposedto, or has rights to variable returns from its involvement with the entity and has the ability to influence those returnsthrough its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to theGroup. They are deconsolidated from the date that control ceases.

Intra-group transactions, balances and unrealised gains and losses on transactions between group entities are eliminatedon consolidation.

(c) Business combinations

All acquisitions are accounted for using the acquisition method of accounting. The cost of an acquisition is the aggregateof the fair values of the assets transferred, liabilities incurred or assumed and equity instruments in issue at the date ofacquisition. Acquisition related costs are expensed as incurred.

The identified assets and liabilities and contingent liabilities are measured at their fair value at the date of acquisition.The excess of the fair value of consideration paid to acquire the business over the aggregate fair value of the Group’sshare of identified assets and liabilities is recorded as goodwill.

(U) Revenue

Revenue represents amounts received or receivable for goods and services provided in the normal course of business(net of VAT and voluntary gratuities left by customers for the benefit of employees). Revenue is recognised at the point ofdelivery of goods and services to retail customers.

(e) Cost allocation

Cost of sales includes the cost of goods sold, direct labour costs, restaurant overheads together with the cost ofoperations and area management. Administrative expenses includes the cost of other central support functions.

(f) Supplier rebates

Rebates from suppliers are recognised in the consolidated financial statements in the period in which they are earned.

(g) Operating leases

Assets leased under operating leases are not recorded on the Statement of Financial Position. Rental payments madeunder operating leases are charged lirecfly to the Statement of Comprehensive Income on a straight line basis. Leaseincentives, primarily rent-free periods, are defered and then systematically released to the Statement of ComprehensiveIncome over the period of the lease term. Payments made to acquire operating leases are treated as prepaid leaseexpenses and are amortised over the period of the lease.

Upon the acquisition of Prezzo Limited a fair value adjustment was recognised by the Group, this resulted in a £1 .4mincrease in the value of pre-paid operating leases and will be amortised over the period of the leases.

(h) Pre-opening costs

Property rentals and other related overhead expenses incurred prior to a new restaurant opening are expensed in theStatement of Comprehensive Income in the period that they are incurred. Similarly, the costs of training new staff duringthe pre-opening phase are written-off as incurred.

(I) Pension costs

Contributions made to defined contribution workplace pension schemes are charged to the Statement of ComprehensiveIncome in the period in which they become payable.

(j) Non-trading items

Non-trading items are items of income or expense which because of their nature and the events giving rise to them, arenot directly related to the delivery of the Group’s restaurant service to its patrons and therefore merit separatepresentation to allow shareholders to understand better the elements of financial performance in the period, so as tofacilitate comparison with prior periods and to assess more accurately trends in financial performance,

(k) Operating profit

Operating profit is stated after all expenses, including any profit or loss on disposal of property, plant and equipment,which is considered to be a non-trading item, but before finance income or expenses.

19

Papa Topco Limited



(I) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operatingdecision-maker. The chief operating decision-maker has been identified as the Executive Committee.

(m) Foreign Currencies

The individual financial statements of each group company are presented in the currency of the primary economicenvironment in which it operates (its functional currency). For the purpose of the consolidated financial statements, theresults and financial position of each group company are expressed in pounds sterling, which is the functional currency ofthe Group, and the presentation currency for the consolidated and company financial statements.

In preparing the financial statements of the individual companies, transactions in currencies other than the entity’sfunctional currency (foreign currencies) are recognised at the rates of exchange prevailing on the dates of thetransactions. At each Statement of Financial Position date, monetary assets and liabilities that are denominated in foreigncurrencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value thai aredenominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined.Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognised in profit or loss in the period in which they arise except for:

• exchange differences on foreign currency borrowings relating to assets under construction for future productive use,which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreigncurrency borrowings;

• exchange differences on transactions entered into to hedge certain foreign currency risks; and

• exchange differences on monetary items receivable from or payable to a foreign operation for which settlement isneither planned nor likely to occur in the foreseeable future (therefore forming part of the net investment in the foreignoperation), which are recognised initially in other comprehensive income and reclassified from equity to profit or loss ondisposal or partial disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the group’s foreignoperations are translated at exchange rates prevailing on the Statement of Financial Position date. Income and expenseitems are translated at the average exchange rates for the period, unless exchange rates fluctuate significantly duringthat period, in which case the exchange rates at the date of transactions are used. Exchange differences arising, if any,are recognised in Other Comprehensive Income and accumulated in equity.

fn) Taxation

The tax expense included in the Statement of Comprehensive Income comprises both current and deferred tax. Currenttax is the expected tax payable on the taxable income arising in the period reported on, calculated using tax rates relevantto the financial period.

Deterred tax is provided using the balance sheet liability method, providing lot atl temporary differences between thecarrying amounts of assets and liabilities recorded for reporting purposes and the amounts used for tax purposes, exceptfor differences arising on the initial recognition of an asset or tiabiiity which affects neither accounting or taxable profit atthe time of the transaction. Deferred tax is calculated on an undiscounted basis, at the tax rates that are expected toapply when the liability is settled or the asset is realised using tax rates enacted or substantively enacted as at theStatement of Financial Position date.

The carrying value of deterred tax assets is reviewed at each Statement of Financial Position date and reduced to theextent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to berecovered.

Tax is recognised in the Statement of Comprehensive Income excepr to the extent that lAS 12 requires certain elementsof the total tax expense to be recorded directly in equity. These elements are separately disclosed in the Statement ofChanges in Equity.

to) Dividends

In accordance with lAS 10, ‘Events after the balance sheet date’, dividends declared after the Statement of FinancialPosition date are recognised in the period in which they are approved by shareholders, as no liability existed at theStatement of Financial Position date.

20

Papa Topco Limited



(p) Goodwill

All business combinations, as defined by IFRS 3 (Revised), are accounted for using the acquisition method. Goodwillrepresents the difference between the fair value of consideration paid and the fair value of the net identifiable assetsacquired.

Goodwill is stated at the value so calculated less any accumulated provision for impairment. Goodwill is not amortised butis reviewed for impairment at least annually, or more frequently when there is an indication of impairment. For thepurposes of impairment testing Goodwill is allocated to specific individual cash generating units and future cashflows arereviewed to assess whether there is any indication of impairment.

(q) Brands and trade marks

The Group carries assets on the Statement of Financial Position for brands that have been acquired. Internally generatedbrands are not recognised and all expenditure on such is written off as incurred. Cost is determined at acquisition asbeing directly attributable cost or where necessary using an appropriate valuation method. Acquired brands with anindefinite useful economic lite are tested for impairment annually. Other brands are amortised over an expected useful lifeof fifteen years, however, this carrying value is also subject to an impairment review if circumstances indicate a changein the recoverable amount.

(r) Investments In subsidiaries

Investments in each subsidiary are held at cost less any impairment losses.

(s) Property, Plant and Equipment

Items of property, plant and equipment are stated at cost less the accumulated charge for depreciation and anyrecognised impairment losses. Cost comprises the aggregate amount paid and the tair value of any other considerationgiven to acquire the asset and includes costs directly attributable to making the asset operate as intended.

Depreciation is charged so as to write-off the cost ot assets over their estimated useful economic lives on a straight linebasis. It is calculated at the following rates:

Freehold land Nil depreciationFreehold properties 2¾ per annumFreehold improvements 4¾ pet annumShort leasehold improvements over the period ot the leaseFixtures, fittings and equipment 10% per annumComputer equipment (included in Fixtures, fittings and equipment) Within the range 20.0% and 33.3% per annum

Restaurants under construction are not depreciated.

All property, plant and equipment is reviewed tot impairment in accordance with lAS 36 Impairment of Assets, when thereare indications that the carrying value may not be fully recoverable.

(t) Impairment - non-financial assets

The carrying values of the Company’s assets are reviewed at each Statement of Financial Position date to determinewhether there is any indication of impairment. If any such condition exists, the recoverable amount of the asset isestimated in order to determine the extent, if any, of the impairment loss. An impairment loss is recognised whenever thecarrying value of an asset exceeds its recoverable amount and impairment losses are recognised in the Statement ofComprehensive Income.

(u) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined on purchase cost on a first-in, first-out basis. Net realisable value is based on estimated selling price less any further costs to be incurred up until the pointof sate.

(v) Financial instruments

Financial assets and liabilities are recognised when the Group has become a party to the contractual provisions of theinstrument.

The carrying amounts of cash and cash equivalents, trade receivables, other accounts receivable, trade payables andother accounts payable approximate to their fair value.

21

Papa Topco Limited



(v) Financial instruments (continued)

Financial assets- Loans and receivables

Trade and other receivables

The trade receivables arising in the business are not amounts owed to the Group from retail customers, but consist ofannual retrospective reoates which are received from trade suppliers shortly after the end of the period in which they areearned and accrued and amounts due from Tesco Freetime Limited arising from its clubcard voucher scheme. Tradereceivables are initially recognised at fair value and subsequently carried at amortised cost, reduced by any appropriateallowances for impairment. A provision for impairment is established when the carrying value of the receivable exceedsthe present value of future cash flows, discounted using the original effective interest rate. The carrying value of thereceivable is reduced and any impairment is recognised in the Statement of Comprehensive Income. Other receivablesare initially recognised at fair value and then subsequently carried at amortised cost.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and in hand and other short-term deposits with maturity of less thanthree months.

Financial liabilities - Other liabilities

Borro wings

Borrowings are initially stated at the fair value of consideration received after deduction of issue costs and including anypremium received on issue. The issue costs and interest payable on borrowings are charged to the Statement ofComprehensive Income over the term of the borrowings, using the original effective interest rate, or over a shorter periodof time where it is more likely than not that the lender will require earlier repayment or where the borrower intends or isrequired to redeem early.

Derivative financial instrumentsThe Group does not trade in derivative financial instruments, however if does hold interest rate swaps in relation to cashflow hedges on borrowings. Interest rate swaps are held at fair value and the movement in fair value is recognisedthrough Other Comprehensive Income.

Trade and other payables

Trade and other payables are initially recognised at lair value and then subsequently measured at amortised cost.

(x) Provisions

Provisions are recognised when the Group has a present legal obligation as a result of a past event under which if isprobable that an outflow of economic benefits which can be reliably estimated will occur. Where the effect of the timevalue of money is material, the provision is based on the present value of future outflows, discounted at the pre-taxdiscount rate specific to the liability. Provisions for onerous leases are recognised, when there are foreseeable net cashoutflows on a lease which has more than one year before expiring or any option to exercise a break.

Onerous contracts

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract isconsidered to exist where the Company has a contract under which the unavoidable cost of meeting the obligations underthe contract exceed the economic benefits expected to be received under it.

(y) Equity

Equity issued by the Company is recorded as amounts received less direct issue costs,

3 Critical accounting estimates and judgements

The preparation of financial statements under FIRS requires management to make estimates and assumptions that affectthe application of policies and reported amounts of assets, liabilities, income, expenses and related disclosures, Theseestimates and judgements are continually re-evaluated and are based on historical experience and other factors,including expectations that are believed to be reasonable under the circumstances. Actual results may differ from theseestimates and assumptions.

The estimates and assumptions that are considered to have a significant risk of causing a material adiustment to thecarrying amounts of assets and liabilities within the next year are discussed in more detail below.

(a) Intangible assetsThe Group tests its indefinite life intangible assets for impairment annually. At I January 2017, the fair values of certainintangible assets were considered to be materially different to the carrying values of each intangible asset, as such, thecarrying value of the assets was considered to be impaired (notel2).

22

Papa Topco Limited


3 CritIcal accounting estimates and judgements (continued)

fb) Valuation of identifiable assets and liabilities on acquisitions

The consideration paid on an acquisition is allocated to identifiable assets and liabilities at their estimated fair values, withany excess recognised as goodwill. The ascribed fair values ate estimates, as active markets do not always exist forassets and liabilities acquired through acquisition and therefore alternative valuation methods are used. The allocation ofconsideration to identifiable assets and liabilities is made on a provisional basis and may be revised if improvedknowledge subsequently becomes available, but no later than one year following the date of acquisition.

(c) Useful lives of property, plant and equipment

Property, plant and equipment are depreciated over their estimated useful lives. Useful lives are based on management’sestimates of the period that the assets will generate revenue, which are periodically reviewed for continuedappropriateness. Changes to these estimates - the current rates of depreciation are set out in the accounting policy innote 2(s) - can result in significant variations in the carrying value and amounts charged to the Statement ofComprehensive Income as depreciation in a particular period.

(U) Asset impairment

In carrying out an impairment review in accordance with lAS 36 it has been necessary to make estimates andjudgements regarding the future performance and cash flows generated by individual trading units which cannot beknown with certainty. Past performance will often be taken as the best available guide to future performance, unless it isknown that the circumstances surrounding a particular trading unit have changed. Where the circumstances surroundinga particular trading unit have changed or will change in the future then it can be even more difficult to forecast futureperformance. For these reasons the actual impairment required in the future may differ from the charge made in thefinancial statements. Details of any impairment charge recorded in the financial statements are provided in note 8.

fe) Accruals

In order to provide for all valid liabilities which exist at the Statement of Financial Position date, the finance team isrequired to estimate and accrue for certain costs or expenses which have not been invoiced and therefore the amount ofwhich cannot be known with certainty. Such accruals are based on management’s best judgement and past experience.Delayed billing in some significant expense categories such as utility costs can lead to sizeable levels of accruals. Thetotal value of accruals as at the Statement of Financial Position date is set out in notes 19.

(f) Deferred taxation

The deferred tax liability provided in the accounts is based on temporary differences between the tax written down valuesof assets and liabilities and their carrying values in the accounts and as such it is dependent on assumptions made in theGroup’s corporation tax computations. The assumptions on the proportion of certain elements of capital expenditurewhich will be eligible for tax relief are subjective and the final calculations agreed with HMRC could differ from theprovision made in the consolidated financial statements.

(g) Onerous contracts

Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract isconsidered to exist where the Company has a contract under which the unavoidable cost of meeting the obligations underthe contract exceed the economic benefits expected to be received under it.

4 Revenue and operating segments

The analysis of the Group’s revenue for the period from continuing operatings is as follows:


2017 2016£000 £000

Sale of goods 219,746 194,973


2017 2016£000 £000

United Kingdom. 218,618 194,973

Republic of Ireland 1,128 -

219,746 194,973

Turnover in the period was wholly attributable to the principal activity of the Group.

23

Papa Topco Limited


S Cost of sales Restated52 weeks ended 62 weeks ended


Cost of sales can be further analysed as follows: £000 £000

Excluding pre-opening costs 184,783 162,183Pro-opening costs 691 807

185,474 162,990

The comparative figures for the 62 weeks ended 3 January 2016, have been restated to reflect what the Directorsbelieve is a mote accurate reflection of the Group’s cost of sales and administration costs. The impact of thisrestatement was to reduce cost of sales by £5.3m and increase administration costs by £5.3m.

6 Employees52 weeks ended 62 weeks ended


Stat I costs consist of: £000 £000

Wages and salaries 67,236 56,053Social security costs 4,939 3,995Pension costs 331 268

72,506 60,316

Of this total cost, £67.8m (62 weeks ended 3 January 2016: £58.4m) was included within cost of sales and theremaining £47m (62 weeks ended 3 January 2016: £1 9m) was included in administration expenses. The averagenumber of employees during the period was 4,032 (62 weeks ended 3 January 2016: 3,828). The Group had 83 (62weeks ended 3 January 2016: 80) employees working within administrative functions and the remainder working withinrestaurants.

7 Directors

The Directors of the Company received no remuneration for their services. For details of remuneration paid to KeyManagement Personnel see note 27.

8 Non-trading items - charged to administrative expenses52 weeks ended 62 weeks ended


£000 £000

Loss on site closures and asset write downs 915 11Provision for impairment of fixed assets 12,811 3,452Provision for onerous leases 2,637 580Amortisation and impairment of intangibles 54,245 295Write-off of rent premium 46 124Restructuring costs 1,266Site abort costs 217 104Expenses incurred in connection with acquisition 8,958

72,137 13,525

In accordance with lAS 36 Impairment of Assets, the Group has carried out a review of the carrying values of plant,property and equipment, taking into account the current trading performance and anticipated future cash flowsdiscounted at a pro-tax rate of 8.2% in order to assess whether there is any indication of impairment. Assets arecarried at their cost less accumulated depreciation, but are reduced to their recoverable amount if that is less than costless depreciation. When a trading unit where recent performance and anticipated cash flows would suggest that it mayhave reduced economic value in use to the business has been identified, it has been valued at fair value less costs toself based on the Directors’ experience of the commercial properly market and their view of its likely value on disposal.

As a result of the above process, a provision for impairment of £12.8m (62 weeks ended 3 January 2016: £3.5m) hasbeen made against the book value of forty two properties.

A provision for impairment of £539m (62 weeks ended 3 January 2016: £Nil) has been made against the book value ofthe intangible assets (see note 12).

A £2.6m provision has been made in respect of onerous property leases (62 weeks ended 3 January 2016: £0.6m).

A £1 3m charge has been made for costs incurred relating to support team and operational restructuting during theperiod.

24

Papa Topco Limited


8 Non-trading items - charged to administrative expenses (continued)

Adjusted profit before tax for headline reporting purposes was calculated as follows:52 weeks ended 62 weeks ended


£000 £000

Loss before taxation (77,456) (16323)Non-trading items (see above) 72,137 13,525

Adjusted loss before taxation (5,319) (2,798)

9 Operating profit52 weeks ended 62 weeks ended


£000 £000This has been arrived at after charging:

Staff costs (see note 6) 72,506 60,316Amortisation 327 295Depreciation 10,524 9,593Loss on disposal ot property, plant and equipment 1,790 966Loss on disposal of inventory 80 77Impairment of property, plant and equipment 12,811 3,452Impairment of intangible assets 53,918 -

Auditors remuneration - audit services 92 79- other audit services 14 61

Operating lease rentals 23,935 19,374

10 Finance costs52 weeks ended 62 weeks ended


£000 £000

Bank loan interest 8,988 8,138Interest on shareholder loan 17,513 14,842Amortisation of debt finance costs 839 756Revolving credit facility finance costs 443 363Amortisation of revolving credit facility finance costs 135 122

27,918 24,221

11 Income tax expense52 weeks ended 62 weeks ended


£‘OOO £000UK Corporation tax

Current tax on loss for the period 546 1 .689Adjustment in respect of prior periods (2,074) -

Total current tax (1,528) 1.689

Deferred taxCredit in respect of change in future rate of taxation (1,421) (3,424)Temporary differences on rolled over gains on property disposals - (803)Origination and reversal of temporary differences (3,401) (1,094)

Total deterred tax (4,822) (5,321)

Total tax credit for the period (6,350) (3,632)

25

Papa Topco Limited


11 Income tax expense (continued)

The tax credit assessed for the period is higher than (62 weeks ended 3 January 2016: lower than) the standard rate ofcorporation tax in the UK. The differences are explained below:


2017 2016£000 £‘OOO

Loss before tax (77,456) (16323)

Ta)c on loss at the average rate of corporation taxin the UK of 20% (62 weeks ended 3 January 2016: 20.17%) (75,491) (3,292)

Tax effects of:Adjustment in respect of prior periods (2,074) -

Credit in respect of change in future rate of taxation (1,421) (3,424)Depreciation on ineligible fixed assets 564 15Profit on sale of non-qualifying assets 132 (124)Expenses - non deductible for tax 10,022 1,810Interest not allowable for tax purposes 1,903 1482Other 15 (99)

Tax expense for the period as shown above (6,350) (3632)

The standard rate of corporation tax in the UK changed from 21% to 20% with effect from 1 April 2015 and accordingly,the loss for the period has been taxed at an effective rate of 20%. Any further changes in the rate of UK corporation taxwill have an impact on the future tax charge.

Two further changes to the UK corporation tax rate have been announced and substantively enacted, with a reductionto 19% from 1 April 2017 and then to 17% from I April 2020.

In addition to the amount credited as the toss for the year, the following tax credit has been recognised in othercomprehensive income:


2017 2016Deferred tax £000 £000Items that will not be reclassified subsequently to profit or loss:

Cash flow hedge - loss arising in the period (472)

12 Intangibles

Brands Goodwill TotalGroup £‘OOO £000 £000

At 28 October 2014- - -

Acquisition 131,100 76,866 207,966

Amortisation (295) - (295)

At 3 January 2016 130,805 76,866 207,671

Amortisation (327) - (327)

Impairment (4,274) (49,644) (53,918)

At 1 January 2017 126,204 27,222 153,426

Both the Prezzo and Chimichanga brands have been recognised as intangible assets. The brand values weredetermined using discounted cash flow techniques and the relief from royalty method. The Prezzo brand is consideredto have an indefinite life due to the historic record, profitability and market position of the trade name. The Chimichangabrand is being amortised over a useful life o115 years.

The goodwill recognised relates to the acquisition of Prezzo Limited. The goodwill balance is tested annually forimpairment, or more frequently if there are any indications that goodwill might be impaired.

The Group prepares cash flow forecasts derived from the most recent financial budgets approved by management forthe next three years and extrapolates cash flows for future years with a growth rate of 1%, applying an 8.2% discount tothe forecasted cashflows to test for impairment. As a result of these tests the value in use was found to be materiallyless than the carrying value, as a result impairments have been made to the Chimichanga brand and acquired goodwill.

26

Papa Topco Limited

Of the total depreciation charge for the period £10.3m (63 weeks ended 3 January 2016: £9.2m) was included withincost of sates and the remaining £0.2m (63 weeks ended 3 January 2016: £0.4m) was included within administrationexpenses.

For details of impairment provisions please see note 8.

Company

The Company has no property, plant or equipment.


13 Investments

During the prior period the Company made an investment in Papa Midco Limited.

Mat Mat1 January 3 January

2017 2016£000 £‘OOO

At 3 January 2016 183,619Additions during the period

- 183,619Impairment (39,155) -

At 1 January2017 144,464 183,619

The Directors believe that the carrying value is supported by the underlying net assets and future trading of itssubsidiaries.

A detailed list of all subsidiary undertakings are disclosed in note 32.

14 Property, plant and equipment

Freehold land, Short Fixtures Restaurants Totalproperties and leasehold fittings and underimprovements improvements equipment construction

£000 £000 £‘OOO £000 £000

36710 77,175 25,228 834 139,94726 2,309 3,755 19,037 25,129

(7,384) 22,170 3,462 (18,248) -

(29,354) (457) (1,080) (74) (30,965)

Group

Cost

At 23 October 2014Acquisition of subsidiaryAdditionsReclassificationDisposals

At 3 January 2016

AdditionsReclassification

Disposals

Atf January2017

Accumulated depreciation

At 23 October 2014Charge for the periodImpairment provisionsDisposals

Al 3 January 2016

Charge for the periodImpairment provisionsDisposals

At 1 January 2017

Net book valueAt 3 January 2016At1 January2017

- 101,197 31,365 1,549 134,111

- 6,379 4,952 10,100 21.431- 8,553 1,365 (9,918) -

- (2,143) (2,125) - (4,268)

• 113,986 35,557 1,731 151,274

172 5,033 4,388 - 9,593. 3,452 - - 3,452

(172) - - - (172)

- 6,485 4,388 12,873

- 5,632 4,892 - 10,524- 12,811 - - 12,811- (611) (1,192) - (1,803)

- 26,317 8,088 - 34,405

- 92,712 26,977 1,549 121,238- 87,669 27,469 1,731 116,869

27

Papa Topco Limited


15 Prepaid operating leasesAsat Asat

1 January 3 January2017 2016£000 £000

Group

Held within non-current assets 5,462 6,181Held within current assets 6,121 5,664

11,563 11,845

Prepaid operating leases is made up as follows:

Included in amounts held within one year is the sum of £6.lm (62 weeks ended 3 January 2016: £5.7m) whichrepresents quarterly instalments on operating leases paid in advance.

Included within non-current assets is a further £55m (62 weeks ended 3 January 2016: £52m) which is made upof lease premium, which IFRS requires to be treated as rent paid in advance and amortised over the length of thelease. A fair value adjustment of £0.6m remains on the Statement of Financial Position as at 1 January 2017 (62weeks ended 3 January 2016: Lim), The fair value adjustment was recognised on acquisition to reflect propertyleases, that were substantially below the market rate of rent.

Company

The Company has no operating leases.

16 InventoriesAsat Asat


£‘OOO £000Group

Raw materials and consumables 2,772 2,489Crockery and utensils 2,664 3,354

5,436 5,843

In the Directors’ opinion, there is no material difference between the replacement cost of inventory and the amountsstated above.

The Group recognised inventory purchases of £50.3m (62 weeks ended 3 January 2016: £47.3m) in the Statement ofComprehensive Income. The amount of inventories written-off in the period and included in non-trading items was£80,000 (62 weeks ended 3 January 2016: £77,000). Amounts written off in the period are included within loss on siteclosures and asset write downs (note 8).

Company

The Company has no inventories.

17 Trade and other receivablesMat Asat

1 January 3 January2017 2016£000 £‘OOO

Group

Trade and other receivables 5,695 6,518Prepayments and accrued income 4,983 4,071Amounts owed by group undertakings 18 -

10,696 10,589

All amounts shown fall due for payment within one year.

Mat Asat1 January 3 January

2017 2016E000 £000

Company

Trade and other receivables 3 3Amounts owed by group undertakings 3,077 1,499

3,080 1,502

All amounts shown fall due for payment within one year. Amounts owed by group undertakings are non-interestbearing, unsecured and repayable on demand.

28

As at1 January

2017£‘ooo

As at1 January

2017£000

11,162309

5,9224,107

12,624

34,124

All amounts shown fall due for payment within one year. Amounts owed to parent undertakingsbearing, unsecured and repayable on demand.

Company

As at3 January

2016£000

16,964247

6,3324,155

14,586

42,284

are non-interest

The Company has no payables falling due within one year.

Amounts falling due after more than one year

Group

Bank loans - senior facilityAccruals

Brought forward amounts reclassified from accruals

Additional provisions

Used during the period

All January2017

Analysis of total provisions:

Non-currentCurrent

Total

As at1 January

2017£000

125,5829,432

135,014

1,266

(1,185)

As at1 January

2017

3,277

3,277

Onerousleases£000

As at3 January

2016£000

124,8658,658

133,523

Total£000

881 881

2,637 3,903

(322) (1,507)

Provisions in the prior year were classified as current liabilities and included with in accruals (note 19).

Papa Topco Limited


18 Cash and cash equivalents

Group

As at3 January

2016£000

Cash at bank and in hand . 16,574 22,058

16,574 22,058

Company

The Company holds no cash.

19 Trade and other payables

Amounts falling due within one year

Group

Trade payablesAmounts owed to parent undertakingsTaxation and social securityOther payablesAccruals

Provisions (note 20) made during the prior period were included within Accruals.

Further details relating to the bank loan can be found in note 21

20 Provisions

As at 4 January 2016

Restructuring£000

81 3,196 3,277

As at3 January

2016

29

Papa Topco Limited


21 BorrowingsAsat Asat

1 January 3 January2017 2016£000 £000

Group

Bank loans - senior facility 125,582 124,865Shareholder loan 194,138 176,625

319,720 301,490

On 14 December, the Group entered into external borrowing arrangements to partially fund the purchase of PrezzoLimited. The loans were subsequently syndicated to a range of lending institutions and carry interest rates aboveLIBOR as set out below, interest being payable in arrears at time periods of one, three or six months as periodicallyagreed in advance.

Debt issue costs of £5.9m have been capifalised and offset against the Senior Facility principal balance and are beingamortised over the term to matUrity. Unamortised issue costs at the Statement of Financial Position date amounted to£4.4m (3 January2016: £5.2m).

The outstanding principal loan amount, the maturity date and the interest rate payable on the Group’s debt facilities areset out below:

Loan principal Undrawn Maturity date

Senior B Facility £130m - 14 Dec 2021

Revolving Credit Facility (RCF) £25m £25m 14 Dec 2020

The rate of interest payable on each loan is the percentage rate per annum which is the aggregate of LIBOR togetherwith a fixed margin, which is determined by the leverage ratio measured at the start of the interest period. The marginwhich applied in the period was 6.00% for Facility B and 4.50% for the RCF if drawn down. Non-utilisation fees of1.70% were payable on the undrawn RCF principal during the period.

Margin per cent per annum

Leverage ratio Facility B RCF

Greater than equal to 3.50 to 1 6.00 4.50

Less than 3.50 but greater than 3.00 to 1 5.75 4.25

Less than 3.00 to 1 5.50 4.00


2017 2016

£000 £000Company

Shareholder loan 194,138 176,625

The subordinated loan from TPG Advisors VI-AIV, Inc. incurs interest at a fixed rate of 10% per annum on a compoundbasis with a maturity date of 11 February 2025.

22 Deferred tax

Deterred tax asset As at As at1 January 3 January

2017 2016Group £000 £000

At 4 January 2016 and 23 October 2014Credit to the other comprehensive income 472

Ati January 2017 and3January 2016 472

30

Papa Topco Limited

22 Deferred tax (continued)

Deferred tax liability

Group

Accelerated capital allowancesOther short term temporary differencesFair value of intangible assets

Deferred tax assetDeferred tax liabilities

As at1 January

2017£000

1,836,188

As at1 January

2017£000

1,836

As at1 January

2017£000

34,708(4,822)

29,886

As at1 January

2017£000

8,318114

21,454

29,886

As at1 January

2017£000

(472)29,886

29,414

As at3 January

2016Number

1,836,188

As at3 January

2016£000

40,029t5,321)

34,708

As at3 January

2016£000

10,320640

23,748

34,708

As at3 January

2016£000

34,708

34,708

As at3 January

2016£000

1,836

The Company was incorporated on 23 October 2014 with the issue of one ordinary £1 share for total consideration of£1. On 10 February 2015 a further 1 .8m ordinary shares were issued for cash consideration of £1 .8m.

24 Reserves

The nature and purpose of each of the reserves within shareholders’ equity is explained below.

Other reserves - reflects the fair value of interest rate swaps in respect of cash flow hedges relating to borrowings.

(Accumulated losses)/retained earnings the cumulative gains and losses recognised in the Statement ofComprehensive Income together with other items which are required to be taken direct to equity.

25 Derivative financial Instruments

Cash flow hedge


2017£000


2016£000

2,483 320


Fair value at 4 January 2016/23 October 2014Credit to the Statement of Comprehensive Income

Ati January2017

The deferred tax liability shown above can be analysed as follows:

Deferred tax assets and liabilities are offset where the Group has a legally enforceable right to do so. The following isthe analysis of the deferred lax balances (after offset) for financial reporting purposes:

Company

The Company has no deferred tax assets or liabilities

23 Share capital

Authorised, allotted and issued

Ordinary shares £1 each

Ati January2017 1,836,188 1,836 1,836,188 1,836

31

Papa Topco Limited

Notes to the Financial Statements for the 52 weeks ended 1 January 2Q17 (continued)

25 Derivative financial instruments (continued)

The fair value of financial instruments that are not traded in an active market (for example over-the-counter derivatives)is determined by using valuation techniques. These valuation techniques maximise the use of observable market datawhere it is available and rely as little as possible on entity specific estimates, and therefore are classified as level 2.The fair value of interest rate swaps are classified as non-current liabilities as the remaining maturity of the hedgeditem is greater than 12 months.

At 1 January 2017, the fixed interest rates vary from 7.2% to 7.7% and the main floating rate is LIBOR. Fair valueadjustments on the interest rate contracts will be recognised within non-current assets and other reserves in equitythrough to maturity.

26 DivIdends

Company


2017 2016£000 £000

Dividends received- 20000

Dividend income of £20m was recognised in the prior year. No dividends have been proposed or paid in relation to the52 weeks ended 1 January 2017, as such no dividend income has been recognised.

27 Related party transactions

Transactions with group and parent undertakings

During the period, the Group was charged £800,000 (62 weeks ended 3 January 2016: £705,000) by TPG VIManagement LLC in relation to monitoring fees. £311000 (62 weeks ended 3 January 2016: £247,000) remainedoutstanding at 1 January 2017.

As part of the TPG acquisition, the Company entered into a financing agreement with TPG Advisors VI - AIV, Inc., theGroup’s ultimate controlling party. The Company received a principal loan of £181.8m and subsequently made arepayment of £20m). The financing agreement attracts interest at a fixed rate of 10% per annum on a compound basis.At 1 January 2017 £194.lm (62 weeks ended 3 January 2016- £176.6m) remained outstanding.

Key management personnel

Members of the Executive Committee are considered to be key management personnel as they act as the principaldecision making body for the trading operations of the Group. Amounts paid to Key Management Personnel, asidefrom those members of Key Management Personnel that were also directors of the Company during the period, totalled£639,000. Group Directors and Key Management Personnel have contributed £52,800 to a management equity planheld outside of the Group. The share purchases have been at arm’s length and at fair value.

28 Future commitments under operating leases

The total future minimum rental payments outstanding under non-cancellable operating leases as at 1 January 2017are set out below:

Property PropertyLeases Leases

Mat Asat1 January 3 January

2077 2016£000 £000

GroupWithin one year 24,035 22,539Within two to five years 95,140 90,155Over five years 313,529 299,289

433,704 411,983

Leases for land and buildings are subject to rent reviews.

On 30 March 2015, the Group entered into agreements to sell and leaseback 21 properties, 20 of which were freeholdproperties and 1 of which was a long leasehold property. The total sales proceeds were £29.8m and 25 year leaseswere signed on each site, resulting in an annual rental commitment of £1.9m (subject 105 yearly rent reviews).

Operating lease costs expensed in the period were £23.9m (62 weeks ended 3 January 2016: £19.4m).

Company

The Company has no operating leases.32

Papa Topco Lim lied


29 Capital commitments


2017 2016£‘OOO £000

GroupAuthorised and conttacted 1,213 2,036

As at the balance sheet date, the Group had capital commitments in respect of contracts for the fit out works at fouradditional new leasehold sites with a total value as shown above.

Company

The Company had no capital commitments outstanding.

30 ReconcilIation of loss before tax to net cashInflow from operating activities


2017 2016£000 £000

GroupLoss before taxation (77,456) (16,323)Finance income (22) (52)Finance expense 27,918 24,221Depreciation 10,524 9.593Loss on disposal of property, plant and equipment 1,790 966Loss on disposal of inventory 80 77Movement in onerous lease provision 2,637 580Write-off of rent premium 46 124Impairment of property, plant and equipment 12,811 3452Impairment of intangible assets 54,245 295Amortisation of uplift in LH premiums 438Restructuring provision 81 -

Decrease/(increase) in inventories 407 (502)Increase in receivables 694 (5,631)(Decrease)/increase in payables (5,536) 11,892

Net cash ml low from operating activities 28,219 29,130

31 Financial risk management

The Group is exposed to certain risks arising from its exposure to financial instruments and IFRS 7 (FinancialInstruments - Disclosures) requires that it provides disclosures regarding the quantum and nature of these risks,together with the policies and procedures put in place to manage them appropriately.

The Board is responsible for the determination of the Group’s risk management objectives and policies. Whilstacknowledging this responsibility, it has delegated the authority and day to day responsibility for designing andoperating systems and controls which meet these risk management objectives to the finance and administrationfunction. The Board regularly reviews the effectiveness of these processes in meeting if s objectives and considers anynecessary changes in response to changes within the business or the environment in which it operates.

The principal financial risks faced by the Group have been identified as liquidity risk, interest rate risk and credit risk.To date the Group has had only very limited exposure to currency risk.

Liquidity risk

The Group finances its operations through a mixture of equity (Company share capital, reserves and retained earnings)and debt. The Group manages its liquidity risk by monitoring its existing debt facilities for both financial covenants andfunding headroom against both short-term and longer term cash flow forecasts. The current trading environment ischallenging and whilst the Group is expected to maintain a strong liquidity position, covenant headroom hasdeteriorated and is fikely to remain under pressure for the next 12 months, although the Group’s sensitised cash flowforecasts do not indicate a covenant breach.

33

Papa Topco Limited


31 Financial risk management (continued)

Maturity analysis

The table below analyses the Groups non-derivative financial liabilities into the relevant maturity groupings based onthe remaining period as at the period end to the contractual maturity date. The amounts disclosed are the contractualundiscounted cash flows.

Less than 1-2 2-5 Over 51 Year Years Years Years Total

As at 3 January 2016 £‘OOO £000 £‘OOO £‘OOO £000

Loans and other borrowings - - - 306,625 306,625Trade and other payables 21,366 . - 21,366

21,366 - - 306,625 327,991


Loans and other borrowings - - 324,138 324,138Trade and other payables 1 5,578 - - - 1 5,578

.

15,578 - - 324,138 339,716

The £130.Om bank loan, included within Loans and other borrowings is repayable in December 2021.

The Group also has a shareholder loan with a principal value of £161 .Sm and a maturity dale of 11 February 2025, anda further committed £25.Om RCF which was undrawn as at 1 January 2017 which is available until December 2020.

Detailed budgeted cash flow forecasts are prepared for the Board setting out anticipated working capital flows togetherwith future obligations from capital projects in progress and the resulting impact on its cash balances.

Interest tate risk

Interest rate risk reflects the Group’s exposure to movements in interest rates in the market. The Group’s income andoperating cash flows are substantially independent from fluctuations in market interest rafes.

The following fable sets out the interest rate risk associated with the Group’s financial liabilities:

Fixed Floating Non-interestRate Rate Bearing Total

As at 3 January 2016 £000 £000 £000 £000

Loans and other borrowings 280,625 26,000 - 306,625Trade and other payables

- 21,366 21,366

. 280,625 26,000 21,366 327,991


Loans and other borrowings 298,136 26,000 324,138Trade and other payables - 15,578 15,578

298,138 26,000 15,578 339,716

The Group’s exposure to interest rate risk arises principally from long term bank borrowings. However, the Group hasentered into two interest rate swap contracts that have the combined effect of converting £104m or 80% of itsborrowings into fixed interest syndicated loans through to February 2020.

The Group analyses financial instruments carried at fair value, by valuation method. The different levels have beendefined as follows:• Quoted prices (unadjusted) in active markets for identical assets of liabilities (Level 1).

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly(that is, as prices) or indirectly (that is, derived from prices) (Level 2).

• Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

See note 25 for disclosures of the derivative financial instruments that are measured at fair value.

34

Papa Topco Limited


31 FInancial risk management (continued)

Interest rate risk (continued)

Interest income received on surplus cash deposits in the period amounted to £22,000 (62 weeks ended 3 January2016: £52,000).

Credit risk

Credit risk arises when a failure by counterparties to discharge their obligations could reduce the amount of future cashinflows from financial assets held at the Statement of Financial Position date. The Groups credit risk arises principallyfrom trade receivables and cash and cash equivalents.

All trade receivables are nonderivative financial assets with fixed or determined payments that are not quoted in anactive market. In practice, the Group has limited exposure to credit risk as the receivables are predominantly due fromwell established trade suppliers or landlords. These relationships are monitored closely and given the ongoing nature oftrading with such counterparties, the likelihood of default is considered to be fimited.

An analysis of the ageing of trade receivables is provided below:


2017 2016£‘OOO £000

Trade and other receivables are due:Current 5,695 6,518Within 30-60 days . -

Within 61-90 days91 days and over -

5,695 6518

There are no amounts wilhin receivables that are past due.

Group policy is that cash collected at its retail branches is banked on a regular and frequent basis to ensure thatsecurity risks are minimised and that cash resources are utilised efficiently. Any significant changes in strategy for thetreasury function are discussed and approved at Board level. Cash is deposited with AA rated, UK-based financialinstitutions, in funds that are readily converted into known amounts of cash and the credit risk on such assets isconsidered to be limited.

Capital management

The Group’s objectives when managing its capital are to safeguard its ability to continue as a going concern and tradeprofitably to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capitalstructure to reduce its cost of capital.

The capital of the group as at 1 January 2017 is summarised as follows:


2017 2016£000 £‘DOO

Total borrowings 324,138 306,625Less cash and cash equivalents (16,574) 122,058)

Net debt 307,564 284,567

Total equity (83,972) (11,175)

Total capital 223,592 273,392

The Group manages its capital with regard to the risks inherent in the business and the industry in which it operates.

In order to maintain or adjust the capital structure, the Group may adjust the amounts of dividends paid toshareholders, return capital to shareholders, issue new shares or sell marketable assets to reduce debt.

35

Papa Topco Limited

Financial liabilities

Borrowings

Shareholder loan

Trade and other payablesFinancial instruments

As at1 January

2077£000

5,713

16,574

22,287

As at1 January

2017£‘OOO

As at3 January

2016£000

6,518

22,058

28,576

As at3 January

2016£000

Proportion ofordinary voting

shares held andCountry of interest inIncorporationCorporate entity Principal activity

Papa Midco Limited Holding company UK 100%

Prezzo Holdings Limited Management services and financing UK 100%Prezzo Limited Restaurant operator UK 100%

Prezzo Restaurants Ireland Limited Restaurant operator Ireland 100%

Jonathans Restaurants Limited Dormant UK 100%Ultimate Burger Limited Dormant UK 100%

The registered office for each of the corporate entities above other than Prezzo Restaurants Ireland Limited isJohnston House, 8 Johnston Road, Woodford Green, Essex, lG8 OXA. Prezzo Restaurants Ireland Limited isregistered at 4 Upper Ely Place, Dublin 2, Republic of Ireland.

33 U1tmt parent undertakings

The intermediate patent company of Papa Topco Limited is Papa Jersey Topco Limited, a company incorporated inJersey. The ultimate parent undertaking is Papa L.P. a company incorporated in Jersey.

The ultimate controlling interest in the Company is held by TPG Advisors Vl-AIV, Inc. (“Advisors’). Advisors iscontrolled by the principals of TPG VI Management LLC, a registered adviser with the U.S. Securities and ExchangeCommission.


31 FInancial risk management (continued)

The Group’s financial assets and liabilities included in the Consolidated Statement of Financial Position are classifiedas set out below:

Financial assets

Trade and other receivables

Cash and cash equivalents

V

125,582 124,865

194,138 176,62515,578 21,366

2,483 V 320

337,781 323,176

With the exception of interest rate swaps held, all financial assets and liabilities are measured at amortised cost. In theopinion of the Directors, the lair value of these financial instruments is not considered te be materially different fromtheir amortised cost.

32 SubsidIary undertakings

The subsidiary undertakings of the Group as at and during the period ended 1 January 2017 were as follows:

36

Documents

Papa Topco Limited Annual Report and Financial …...Papa Topco Limited Strategic Report for the 52 weeks ended 1 January 2017 (contmued) Outlook and future developments ft is our