Pizza Express appears destined for a debt restructuring that could hit its lenders, as the UK-based international pizza chain is reportedly in early talks to refinance two tranches of borrowing worth a combined £665m.
This is part of a total debt that had reached £1.1bn by the end of December 2018.
Pizza Express paid out £93m in interest payments in 2018, a year in which it reported a pre-tax loss of £55m loss, on sales of £543m. About half of the interest payments are made to its Chinese parent company, Hony Capital.
Founded in 1965, Pizza Express has 470 outlets in the UK, with a further 150 internationally and employs 14,000 people.
According to reports from Bloomberg, the group has hired advisers ahead of talks with creditors who hold £465m of debt due for repayment in 2021 and £200m due the following year. Bondholders have also reportedly hired advisers to assist them in the discussions.
Both sets of bonds are trading at below the value at which they were issued, indicating doubts in the market that those who have lent to the company will get all of their money back.
The company’s performance has also deteriorated in line with the broader mid-market, casual dining sector. Earlier this year, Pizza Express underlying profits dropped 7.7% to £32.4m in the six months to the end of June. The chain opened only two new branches over the period and said the focus would be on improving existing sites and revamping its menu.
As reports of the discussions emerged, speculation mounted that the company could go the way of Jamie’s Italian, founded by the TV chef Jamie Oliver, which closed earlier this year.
Sources are reported to have said it is not in danger of collapse and was also unlikely to pursue a company voluntary arrangement (CVA) like those agreed by rival Italian chains such as Carluccio's and Prezzo.
Pizza Express is understood to have until 2021 to refinance its debts, adding that interest payments were being met by the group’s existing cashflow.
RPA Perspective With mid-market casual dining enduring the sort of battering that used to be the preserve of mid-market retail, we caught up with Five Guys property director Richard Collier recently.
This year, burger chain Five Guys will open its 100th store in the UK, bringing its total portfolio across the UK, France, Spain and Germany to around 140 outlets. The aim of the Five Guys JV — a joint venture with the founding US business and Charles Dunstone, founder of Carphone Warehouse — is to open 10 stores per market per year over the next five years, according to Collier.
Collier ascribes the success of the US diner-style chain to the simplicity of its offer, which allows it to achieve great consistency and speed of service, and makes it one of the fastest options on ‘dark kitchen’ platforms such as Deliveroo and UberEats. “Essentially, we do one thing — burgers and fries — but we do it really well,” he said. “Typically, people have their food within six minutes and that means that Five Guys is usually part of a person’s day or night out, not the focal point. So people know what they are going to get, plus great service and our obsession with cleanliness.”
As Five Guys expands internationally, Collier said cultural differences are becoming more notable — such as the demand in Spain for food later in the evening and the high uptake of the free toppings in Germany. Store sizes vary, from the 150 sq m outlet on London’s Portobello Road, which is the smallest to open, to the flagships in cities such as Frankfurt, which come in at 550 sq m.
“Our optimum store size is around 350 sq m, with high footfall,” Collier he added. “Because of evening demand, we tend to prefer urban high streets, so that we are not constrained by shopping-centre hours. Office populations, students and nightlife are all on our tick list.”
Currently, Five Guys is focusing on finding sites for standalone drive-up locations for click-and-collect, for which Collier foresees strong demand in the UK, France and Germany.
