Pizza Hut to Accelerate Refurbs

Pizza Hut to Accelerate Refurbs

In an exclusive interview with M&C Report, Chief Executive, Jens Hofma announces that Pizza Hut UK plans to accelerate its refurbishment programme next year by investing in a further 90 restaurants, after seeing like-for-like sales at invested sites grow by 20 to 25% on average.

It comes as Pizza Hut reports that it turned a pre-exceptional operating loss of £4.4m into a profit of £1.7m in the year to 1 December 2013; operating profit has grown 18% since 2011, Hofma pointed out. EBITDA for the year was £11.3m. Turnover fell 14.4% to £230.6m as it closed 21 “underperforming” restaurants, leaving the estate at 307 at the year-end; it currently stands at 300 and Hofma said acquisitions could re-start in six to twelve months.

The Rutland Partners backed group reported a pre-tax loss of £968,000 against a pre-tax profit of £1.3m in the previous year, although Hofma said the previous year benefited from a £5m credit related to its separation from Yum! and there were also negative exceptional costs in 2013 from exiting sites.

Pizza Hut has now refurbished c20 sites under its £60m programme to revamp more than 60 sites this year under a new menu and design that emphasises its American heritage. The first, in Crawley, opened last October and Hofma said it’s maintaining its 40% like-for-like sales growth. Minimum like-for-like uplifts have been c10% with an average of 20-25%.

Hofma said: “The impact of the remodelling programme is far more positive than what we had originally expected. We’ve done a range of investments going from £50,000 to £650,000 and we’re seeing very healthy sales growth coming out of these investments.”

He continued: “We reopened our Trafford Centre restaurant [in Manchester] last week, an investment of more than £500,000. Sales almost doubled in the week and a half. We have another 30 to 40 to go this year and then we’ve got another 90 to come next year and even more in 2016. Over the next three years we should have hit almost every site in the country.”

Hofma said he expected a “few more closures” but not a “significant” number. “We’ve done most of the tidying up of the estate that we needed to do. There’s still a few more to do but generally we’re in pretty good shape. We’re looking for new sites as well. Hopefully within the next six to twelve months we should be back into growth as far as the size of the estate is concerned, rather than in decline.”

Regarding location, Hofma said he’s “very interested” in leisure sites, big retail outlets and shopping centres. He described 2013 as a “story of two halves” for Pizza Hut, with top line decline in H1 as it scaled back discounts, coupled with “very healthy growth” in average spend and margins. Footfall was in decline during the first three quarters of the year.

Hofma said summer was “challenging”, especially with the heatwave during the school holidays. However, since October Pizza Hut has been in positive like-for-like growth and this has continued until today. He said Pizza Hut is increasing its training, maintenance and cost of sales budget “in order to invest back into the guest experience. We are consciously going on a gradual journey of improvement of profitability rather than pulling out all the plugs in order to maximise profits in any one given year.”

Asked about his explications for this current financial year, Hofma said: “We are definitely expecting our top line to grow from a like-for-like perspective and we are also expecting our trend of improving profitability to continue going forward this year. Everything that we’ve seen out of the first six months of trading is pointing in that direction; we’re actually running well ahead of our initial expectations for this year.”

Hofma said he believed Pizza Hut UK has the strongest balance sheet of any company in the industry, with a cash pile of £25m to £30m. He added it’s also more cash generative than it has ever been, is debt free and with a positive cash-flow.

Hofma said Rutland, which bought the dine-in business in 2012 from Yum! Brands, is “delighted” with the progress being made. He said there’s a “great relationship between management and investors”.


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