Pizza Hut Restaurants CEO Jens Hofma: ‘CVA a necessary evil’

Pizza Hut UK’s company voluntary arrangement (CVA) was a “necessary evil” and has left the business in “a more robust position,” CEO Jens Hofma has said.

Speaking at MCA’s the Conversation, Hofma revealed that the business had made several attempts to find an alternative solution to deal with outstanding lockdown rent debts with landlords, but the hostility of some left it with “no other choice” but to turn to a CVA.

“It’s aged me by about five years and it’s not a particularly pleasant process to go through, but I think it’s pretty unavoidable when you have such a large estate with over 200 individual landlords,” he said.

“The attitudes within the landlord community are very different. They range from threatening letters of ‘I’ll see you in court when the moratorium has lifted,’ and ‘I’ll be happy to see you go into bankruptcy’, to incredibly generous and practical approaches.”

Though the CVA – which was approved in September and will see the closure of 29 sites – has left the now 215-strong estate in “a much sounder and more robust financial situation,” Hofma described the process as “frustrating”, “expensive and time consuming.”

The restructuring led to the loss of 450 jobs, and whilst the business tried to maintain transparent communication with affected teams throughout the process, he added that the technicalities and uncertainties have continued to pose ongoing difficulties.

“We communicated with our teams throughout but it’s not an easy process to understand. It’s very technical and there’s a variety of outcomes,” he said. “It does put the business in a situation of prolonged uncertainty because during your entire CVA you have break options for landlords at different points, and you don’t quite know what your estate is going to look like at the end of all of this.”

With landlord break clauses still a live issue, Hofma said the business has come up against a number of newer operators “circling the estate” to see if they can “tempt landlords to go for the new kid on the block rather than sticking with tenants who’ve been around for decades.”

So far he said the business was “putting up a good fight in defending” its own vulnerable sites, but the clear expansion ambitions of up and coming operators and growing investment opportunities suggests that where some capacity might disappear from the market, there will always be others eager to fill the gap.

“Clearly, valuations of hospitality businesses are at an all-time low, so from an investment perspective there could be some really interesting opportunities,” he said. “I do anticipate quite a bit of M&A activity in the sector over the next few months, if not years, potentially some consolidation and creation of new multi brand groups.”

Vagabond Wines managing director Stephen Finch agreed, adding that whilst there will be “a lot” of failures, “with failures there will be opportunity.

“For those who have capital this is a once in a generation opportunity to make a huge life changing investment,” he said. “But unfortunately, there’s going to be a lot of people who have put in everything over years or decades, and it’s all going to be extinguished through no fault of their own.

“We’re going to see a whole mosaic of heartbreak and upsides, but the one thing we do know is the only thing that matters right now is cash and being alert and nimble to make changes on the dime.

“It’s not just the coronavirus that’s the enemy, it’s also the way people are fashioning a response to it.”