PizzaExpress reveals expansion slowdown and menu simplification: PizzaExpress, which is owned by Hony Capital, has revealed it has decided to moderate its pace of expansion in the UK and Ireland as it focuses on generating like-for-like growth. The company is also rolling out a simplified menu with about 40 fewer dishes across the estate following trials last year. The details were revealed in the company’s annual report for the year ending 1 January 2017, which has been filed at Companies House.

UK and Ireland estate: The company opened 24 sites during the period as well as adding 17 sites through the acquisition of Firezza in February 2016. Firezza now has 22 stores and has also opened its first sit-down restaurant, in Soho. The company stated: “We expect a moderation in the pace of expansion of new outlets across the (UK and Ireland) market requiring an increasing focus on generating solid like-for-like growth through offering great-tasting food at good value in appealing restaurant environments. All these attributes have been and continue to be key strengths of our business and therefore we remain confident in our ability to grow successfully in such market dynamics.”

New simplified menu: The company stated: “We began trials of a simplified menu, with about 40 fewer dishes, in March 2016 in the south west and Bedfordshire and Buckinghamshire areas. We used feedback from pizzaiolos and front-of-house teams to reduce back-of-house processes and complexity while maintaining a comprehensive range of dishes and the possibility for future innovation. Following incredibly positive responses to the trial, we have decided to introduce the simplified menu across the entire UK and Ireland estate. This will enable our teams to focus on providing the highest-quality food to our customers while at the same time driving simplicity and efficiency in our operations.”

Delivery and Deliveroo: In May 2016, the company entered into a partnership with Deliveroo and by the period end was using the service in more than 250 restaurants in the UK. PizzaExpress said like-for-like sales “improved significantly” in the second half of the year as the Deliveroo partnership began to deliver additional sales growth to the UK business. The company stated: “Recently, the trend for online delivery services has grown exponentially. In 2016, this growth saw one-in-five people place an online delivery order every week and two-in-five customers ordering once a month. In both the UK and Ireland and international segments we see the further development of the home delivery market as one that offers considerable growth opportunities. We will continue to develop our presence in this market in the future.”

International: The company now operates 33 stores in mainland China where it is rebranding the business as PizzaMarzano because the name is easier to pronounce and will resonate better with customers there. In addition to strengthening its presence in existing markets, the company opened its first restaurant in Singapore in July 2016, which represents its first new international market since 2011. In total, it added 27 sites outside the UK and Ireland and the international segment now represents almost 18% of the total group estate (10% company-owned, 8% franchise). The company stated: “We believe we are well-placed to take advantage of growth in the eating-out market in our selected international territories through our strategy of opening new restaurants in well-established areas of mainland China such as Shanghai and also by broadening our geographic reach into tier-two cities such as Wuhan. We will also continue to evolve and adapt our offering to ensure it remains highly relevant and offers great value to our customers. Outside mainland China, our operations in Hong Kong and the UAE are well established and we will seek to grow our presence in these markets through the addition of carefully selected sites that complement our existing estate footprint. We continue to anticipate the majority of Ebitda growth in our international segment will arise from the opening of new company-operated restaurants in mainland China, where we expect to open a substantial number of restaurants each year. We also continue to seek growth through our franchise partners in eight existing international territories of Indonesia, India, Cyprus, Gibraltar and the Middle East, and will seek to expand with existing or new partners in additional territories where suitable opportunities arise.”

Technology investment: The company stated: “We have started a significant investment programme in IT to transform the technology we use in our restaurants to improve the service we offer to our customers and to make life easier for our managers and team members. Over the period we have implemented new solutions to manage our purchase-to-pay process. This has eliminated hours of effort each week for our restaurant managers and will improve central visibility of restaurant stock holding and supplier performance. We have also successfully piloted new EPOS solutions that are currently being rolled out. The new solutions feature hand-held technology that allows our team members to take orders at the table and immediately send the order to the kitchen without needing to revisit a static till. This allows team members to spend more time with the customer and ensures we help time-pressed customers to enjoy our pizzas as quickly as possible. Our investment in technology is also allowing us to improve customer service in the way we take payment. The hand-helds facilitate a faster and smoother process for those customers who are using any form of voucher. We have also been able to take advantage of integrated payments, which makes the payment process easier for both customers and team members. To optimise the use of mobile solutions we are investing heavily in the network infrastructure at our restaurants – the external links and the internal Wi-Fi networks. This in turn has allowed us to offer our customers free in-restaurant Wi-Fi.”

Listening to customers: The company stated: “In February 2016 we launched How Did We Dough? This is a programme that enables us to listen to customer feedback and act on it, making the right decisions for our customers. In the period we received more than 40,000 customer responses. Before the programme launched, we received fewer than 700 customer surveys a week but with How Did We Dough? we now consistently receive more than 2,000 a week. Email invitations and in-restaurant collateral, including posters, menu advertisements and till rolls, have helped to maintain this level of customer engagement.”

Blank bills: The company stated: “We operate a “blank bill” scheme that gives our restaurant managers the discretion to surprise and delight guests by saying “this one’s on us”. The scheme empowers our teams, engenders loyalty and generates positive word of mouth. It’s up to our teams to decide who merits this extra-special treatment. It might be a first date, a couple celebrating a special occasion or a family coping with some unfortunate news.”

Partnerships: The company said it continued to seek ways to broaden its customer base through selected commercial partnerships. In March 2016, it launched a partnership with 02, offering priority members a main course for £5 every week. It also relaunched its chilled range in April last year and introduced a new frozen range in conjunction with company Iceland in September 2016. The company stated: “We focused on reinvigorating our range of retail pizzas and introduced new Romana and Classic pizzas, including some of the top-selling flavours from our restaurants. We also launched the UK’s first gluten-free retail pizza, which was an exclusive launch in partnership with Sainsbury’s. Later in the year we launched our Artisana frozen range. The range of five sourdough pizzas, three ready meals and three gelatos is stocked exclusively in Iceland.”

Charitable work: The company raised almost £700,000 for good causes during the period, including the Venice In Peril Fund and Macmillan Cancer Support, with whom it launched a four-year partnership in March 2015.

Financial performance: The company saw turnover for the year to 1 January 2017 increase 9.8% to £509.7m, compared with £464.1m the year before. This growth was driven to a large extent by its international business, with turnover more than doubling to £69.7m, together with new sites in the UK and Ireland outweighing a small 0.9% decline in like-for-like sales growth in the UK market. Ebitda grew 1.1% to £102.6m, compared with £101.4m the previous year with this increase again coming from growth in its international operations, offsetting some margin pressures in the UK. Total operating profit was £112.4m (2015: £59.0m) an increase of 90.5%, although margins declined by 130 basis points as a result of the higher proportion of turnover from immature international markets and cost headwinds in the UK. Net interest charges of £129.5m (2015: £69.6m) resulted in a loss before tax of £17.2m (2015: loss of £10.5m). Net cash inflow from operating activities was £77.1m (2015: £52.8m), after payments of interest on the group’s senior secured and senior notes of £72.5m (2015: £22.5m). Net cash outflows from investing activities totalled a further £76.3m (2015: £961.2m), of which £62.6m (2015: £27.6m) related to the purchase of property, plant and equipment. The significant decrease from the prior period in net cash outflows from investing activities is due to the prior period, including the impact of the acquisition of the group by Hony Capital. As at 1 January 2017, the group’s total funding stood at £1,040.9m (2015: £985.6m), comprising external senior and senior secured notes of £650.3m (2015: £646.9m), a loan from its parent of £386.1m (2015: £334.2m) and ordinary shares of £4.5m (2015: £4.5m). Cash was £52.0m (2015: £49.3m). Net external debt was therefore £598.3m (2015: £597.6m). The senior secured notes are due for repayment in August 2021 and the senior notes are due for repayment in August 2022. The loan from parent is due for repayment in August 2024. The highest-paid director received remuneration of £704,000.

Outlook: The company stated: “Sector trading conditions in the UK have undoubtedly been difficult over the period and we anticipate the market will remain so as we move through 2017. The economic environment will continue to be challenging as the uncertainty generated by the result of the UK referendum to leave the European Union together with other geopolitical changes start to weigh more heavily on consumer sentiment in the near term. Added to this are the unprecedented cost challenges our sector faces – be they input cost inflation linked to sterling depreciation, increases in the National Living Wage, rates revaluations, or upward pressure on commercial rents. Despite the challenges these factors present, we are confident in our strategy. We will continue to drive innovation and efficiency into our core UK restaurant operation, while also growing our international estate, primarily in mainland China. We will supplement this approach with further development of our successful retail brand while remaining open to relevant potential new opportunities as they arise. At the heart of every great business is its people, and PizzaExpress is fortunate enough to have some truly exceptional people working in its teams. The PizzaExpress family is our strongest asset and we are grateful for the hard work and commitment that goes into making sure our customers have a truly fantastic dining experience every time they visit a PizzaExpress restaurant, wherever that is around the world.”