Pancake House embarks on 5-year overseas expansion

Homegrown casual dining chain Pancake House Inc. is embarking on an overseas expansion program that aims to build a network of 300 stores—or as big as the scale of its current domestic business—in the next five to seven years.

In a briefing after the company’s annual stockholders’ meeting on Friday, Pancake House chairman, president and chief executive officer Martin Lorenzo said the group would like to establish the 300 stores mostly in the Middle East and Southeast Asian countries. This will be undertaken as it continues to expand its local operations, which will also reach 300 stores this year under various brands such as Pancake House and the Yellow Cab premium pizza chain, Lorenzo said.

“We can grow our (local) stores by 10-15 percent each year in the next five years targeting the very underdeveloped growth cities,” Lorenzo said.

The group plans to add 35 new stores in the country this year, targeting the so-called “new wave” cities such as Cebu, Davao, Laoag, La Union and Subic.

Lorenzo said it made more business sense now to expand outside the traditional urban hubs like Makati.

With its current scale of operations, Lorenzo estimated that Pancake House would be able to grow its net profit this year by 70 percent over last year. Profit attributable to parent equity holders in 2011 amounted to P90.1 million, on the back of P2.34 billion in revenue.

Cash flow as measured by earnings before interest, taxes, depreciation and amortization (Ebitda) was also projected to jump to P570 million this year from P330 million last year.

The biggest cash flow contributors among its brands for 2012 are expected to be Pancake House at P200 million and Yellow Cab at P230 million. “As of the first half, everything is on track,” he said.

The chain also owns Dencio’s Bar and Grill, Teriyaki Boy, Sizzlin’ Pepper Steak and Le Coeur de France. It operates Chicken Rice restaurants in the country.

Given its level of cash flow, Lorenzo said the group had about P350 million in free cash yearly. Annual capital spending is estimated at P100 million.

Overseas expansion is part of its strategy. The group has already established its presence in Qatar and Malaysia.

“When we acquired Yellow Cab it already had four very successful outlets in Qatar, so we’re going into Qatar now, actively franchising in Kuwait and UAE, all around the Middle East,” Lorenzo said.

Dubai-based Abraaj Capital, a private equity fund that counts Middle East royal families, high net worth individuals and sovereign wealth funds as investors, is helping Pancake House with its offshore expansion.

Pancake House gained entry in the region via a joint venture in Singapore that operates the Chicken Rice Shop chain in Malaysia.

“Chicken Rice is growing Pancake House in Malaysia and we’re growing Chicken rice here. They run Pancake House in Malaysia, we run Chicken Rice in Philippines, so there’s mutual dependence,” Lorenzo said.

In Malaysia, Pancake House is expected to end the year with seven stores, five of which are in Kuala Lumpur and two in Kota Kinabalu. There are three existing stores in Kuala Lumpur and one in Kota Kinabalu.

The group intends to grow its overseas business through either franchising or entering into joint-venture partnerships with local groups “who are entrenched in the business,” Lorenzo said.