Prezzo, the AIM-listed Italian restaurant operator, is to slow down its ambitious opening programme after conceding that it had entered a challenging period.

The company, which is controlled by the Kaye family, said that pressure on profit margins was unlikely to be alleviated in the short term because of weak consumer spending and cost inflation in areas such as wages, utilities and food.

Jonathan Kaye, the chief executive, said that the group had been forced to put up menu prices twice this year, by a combined figure of almost 6 per cent. Although this was the most aggressive pricing strategy that Prezzo had implemented, the rises had still not quite mitigated food inflation.

He said that despite some recent stabilisation of food inflation, the group was still being affected by the price of items such as mozarella cheese, meat and even wine, partly due to the strong euro. Mr Kaye said that the poor summer weather had also been an issue, preventing Prezzo's restaurants from using their outside areas.

Prezzo reported an 8.8 per cent rise in underlying pre-tax profits to £5.2 million in the half-year to June 29, although that excludes exceptional losses of £2.3 million from impairment charges, disposals and lease terminations. Diluted earnings per share after including one-off losses fell from 1.41p to 0.69p, and there is again no dividend.

Revenues for the period rose by 27.3 per cent to £41.4 million, helped by the opening of ten new outlets. It has opened another four units in the second half, taking its total to 134, of which 119 carry the Prezzo brand.

Mr Kaye said that he expected the number of openings in the full year to be about 17, down from a previous target of 20 to 25 and he predicted that next year's openings would be even lower: “Next year depends on where we see the economy going.”

Shares of Prezzo, which were trading at 78p a year ago, fell by p to 34.5p.

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