Pizza Express calls in advisers as debt mismanagement criticisms mount
Pizza Express faces wipe-out under crippling debt repayments that could rob the high street of another familiar name. AccountingWEB spoke with business experts to find out what went wrong to leave the dining business staring at oblivion, despite turning an operating profit.
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"Due to the fixed return and consequent lower risk, debt is normally considered cheaper than shareholders funds, Redfern said,..."
How on earth can that be the case? When do you see companies going bust for having too much issued share capital (and not enough debt)?
"Due to the fixed return and consequent lower risk, debt is normally considered cheaper than shareholders funds, Redfern said,..."
How on earth can that be the case? When do you see companies going bust for having too much issued share capital (and not enough debt)?
Try reading a little further.
Or else stick to law and leave economics to those that know what they're talking about.
Blimey, he's right (I misunderstood the context re borrower/lender perspective). There is a 1st time for everything!!!
As an aside, this shows the importance of clear unambiguous writing and a well written article would have made that risk point clear & unambiguous (without having to read further and work out the context).
I'm not an accountant, but a lawyer. As someone who specialises in IP (and consequently the value of brands, which will include goodwill - not in the footfall sense), the phrase in the article about the value of intangibles interested me. I am often amazed at the value attributed to these types of intangibles and I suppose, when the chips are down for a business which is going down the pan, the value attributed to intangibles is, well, exactly that, intangible.
Of whats happening, it feels like the bubble is about to burst again. Big debtors all around, too big that banks just can't let them fall so they lend more to give these companies a chance hence the pile of debt (and perhaps because there will be pile of bankers' commissions). Later on the banks will follow suit... once again and then taxpayers and pensioners will take all the hit. The banks would blame the auditors of course for not raising the going concern issues but the truth is the damage has been done long before auditors come in due to poor financial management. Perhaps its about time to regulate plc companies in terms of debt-equity management.
Why start to blame the auditors? The first big debt repayment £465m was due (August 2021) well beyond a year after the audit report was signed (in April 2019) so no issue as such as long as the banking covenants were being hit. Operating cash flows were very healthy and still are. This is only a story now as the company is making contingencies for that debt repayment and are worried about it. They can probably do nothing and survive until August 2021 although that would obviously be foolish.
The group annual report is a ridiculous 110 pages and the P&L starts on page 60!
The group annual report is a ridiculous 110 pages and the P&L starts on page 60!
Is there a market for a service that would take published accounts like this and condense them to standardized reports in accordance with traditional conventions (no IAS16 for example) without any "adjustments" or "normalisations", including a crystal-clear statement of cash flow? As an investor I would subscribe to such a service if the price was right. I find it very difficult to make use of modern company accounts because they are too long and I don't understand half of what they contain despite having been in business for 40 years and learning book-keeping from my father when I was a teenager. Such a service could be named "Old Fashioned Accounts"!
‘For the hospitality sector, removing all of the serving staff and physical space for customers and focusing on just production and distribution delivers the disruptive model that is killing the old restaurant industry and Pizza Express is just the latest, not the last,” said Robertson.’
Take away the restaurant and the serving staff and in my mind you don’t have hospitality- you are in takeaway territory.
What we as a society needs to decide is whether we all want to just sit in our houses in splendid (relative) isolation ordering in takeaway or whether we want the facility to go out and about in the wider world. The same is true of retail generally and unless we are careful we will end up living in isolation whether we want to or not.
True but now you can often order in advance, have it brought to your table, pay on your phone for it so that is almost tantamount to a takeaway service too!
I think Amanda's hinting we should get off our posteriors generally and get out more. That idea has wider application than what's under discussion here.
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Would this not be classed as a Zombie company where its leveraged up slack accountants a board that still gets its bonuses . We have and will see this again as these companies fold.
The issue that I haven't seen addressed here is how Pizza Express came to have £1.1bn of debt on its balance sheet.
Simplistically, a restaurant should have positive cash flow - customer receipts arrive every day whereas wages are weekly or monthly, rent is monthly or quarterly, and suppliers perhaps on 30 or 60 days so, provided it is profitable, it shouldn't need borrowed money to function from day to day.
What seems to be the case though is that the annual interest cost appears to eliminate any corporation tax liability.
So maybe this story is less about the high street and our eating habits and more about modern business ownership and financing methods?
Day to day yes, but what about the massive set up costs of each restaurant? If they wait until operating cash flows delivered enough to set up a new site it would take them 100 years or more to get to the number of sites they have! Herein lies the problem...wanting to expand and to be big and too quickly and in prime expensive locations which is the failing of most of the other chains that have gone belly up to date.
I think the clue will be within this part of the article
"The business employs more than 14,000 people in more than 600 kitchens around the world but is now saddled with debts that average around £1.6m per restaurant, following a buyout in 2014 from Chinese private equity firm Hony Capital"
A highly leveraged buyout is I suspect the culprit. (Though have not looked at the accounts/history so merely an educated guess)
I am surprised a Pizza based Company ran out of Dough.
Seriously what were the Auditor supposed to do, raise the white flag, announce the Company was technically insolvent and depart from the Going concern concept, the Company would have gone under with a year, a least they have a bit of a chance of survival now.