Pizza Hut Restaurant
Pizza Hut UK’s auditors have warned about the company’s future amid concerns over its mounting debt burden.
The group, which is the biggest British franchisee of the US restaurant chain, is in talks to refinance around £31m of its £73m debt pile, which it will have to repay by next April.
This comes as the company relaxed terms on its loans with banking partners.
In its latest accounts, Pizza Hut UK warned there was a possibility it could still breach its debt agreements in a “serious but potentially negative scenario”.
As a result, the company’s auditor, PwC, warned that there was a “material uncertainty that may give rise to significant doubt about the company’s ability to continue as a going concern”.
However, PwC said: “The company has excellent relationships with its lenders, some of whom are equity shareholders in the group and the directors anticipate that any potential breaches may be forgiven before they occur.”
Pizza Hut UK operates 152 outlets and employs 4,000 staff. Its takeaway outlets are run separately by franchise partners.
Pizza Hut’s accounts for December 2022 show revenue jumped after the pandemic, rising to £161 million from £130 million a year earlier.
But costs rose even more rapidly, leaving it with an operating loss of over £3m and a pre-tax loss of £3.6m.
The company said: “As the effects of Omicron begin to wind down, the outbreak of war in Ukraine has led to unprecedented and sustained inflation in energy, food and transportation costs.”
It said electricity prices rose almost twelve times from historic levels, while food price inflation rose from 8 percent to 22 percent.
Pizza Hut said it has also been hit by staff shortages and increased financial pressure on households, which has led to workers demanding pay increases.
It added: “In 2023 some rebalancing of the situation is expected and some green shoots are emerging. While menu price increases have been inevitable, demand for restaurant experiences remains strong.
Jens Hofma, chief executive of Heart With Smart Group, which runs the Pizza Hut UK franchise, said the restaurants’ profit margins have returned to pre-Covid levels.
He added: “We are currently trading on a like for like store basis well ahead of 2019, our restaurant profit margins are good and in line with pre-Covid.
“We also experienced an outstanding summer trading period with double-digit growth, driven by the weather and our family value meals as well as our buffet, which offer consumers an affordable way to enjoy eating out “
The UK branch of Pizza Hut was bought from its US owners in 2012, then sold again in a management buyout in 2018, worth an estimated £100 million.