RBD
03/04/2012 09:44
FLLYR
REL: 0944 HRS Restaurant Brands New Zealand Limited
FLLYR: RBD: Restaurant Brands Full Year Results Announcement
3 April 2012
NZX
RESTAURANT BRANDS' 2012 ANNUAL RESULT
2012
$m 2011
$m Change
(%)
Total Group Revenue 308.9 324.9 -4.9
Group Net Profit after Tax* 18.4 25.1 -26.8
Dividend (cps) 16.0 17.0 -5.9
* Excluding non-trading items
Key points
o Group Net Profit after Tax (excluding non-trading items) was $18.4 million
(18.8 cents per share), down 27% on prior year.
o Total Group Revenue of $308.9 million was down $16 million (4.9%) mainly
from the impact of the Christchurch earthquake ($5.9 million) and sell down
of Pizza Hut stores ($5.9 million).
o KFC sales reached a new high of $236.3 million with store transformations
continuing to produce positive sales and profit growth.
o The Pizza Hut sell-down programme is gaining momentum with 13 stores now
sold to independent franchisees.
o Despite reduced operating cash flows, correspondingly lower capital
expenditure meant debt levels finished close to prior year at $13.6 million.
o A final fully imputed dividend of 9.5 cents per share, making a full year
dividend of 16.0 cents for the year, will be paid on 29 June.
o Carl's Jr rights were acquired for New Zealand as the company's fourth
brand.
Group Operating Results
Restaurant Brands Net Profit after Tax (excluding non-trading items) for the
12 months to 29 February 2012 (FY12) was $18.4 million (18.8 cents per
share), down 27% on last year's record profit of $25.1 million (25.6 cents
per share).
Net Profit after Tax (including non-trading items) was $16.9 million (17.3
cps) compared to $24.3 million (24.9 cps) in 2010/11.
The Christchurch earthquake and the acceleration of Pizza Hut store sales to
franchisees weighed on group sales and profit. However, the underlying result
also reflected a tough trading environment and higher input costs. These
factors were most evident in the first half, accounting for $5.3 million of
the $6.7 million reduction in NPAT. In the second half of the year these
factors were mitigated by some cost reductions and a focus on more profitable
lines.
Total store earnings before interest, tax, depreciation and amortisation
(EBITDA) dropped $10.5 million (17%) to $51.4 million. KFC contributed $6.6
million of the reduction, Pizza Hut $3.5 million and Starbucks Coffee $0.4
million.
Total store sales of $308.2 million were down $16.2 million (5%) on the
previous year's sales. Same store sales for the group were down 2.5% (up
2.4% in 2010/11). KFC saw total store sales growth of 0.2% but Pizza Hut and
Starbucks Coffee declined 23.3% and 9.8% respectively.
Year end store numbers at 194 were 14 down on February 2011. Eight Pizza Hut
stores were sold to franchisees as part of the progressive sell-down
strategy. One red roof (dine-in Pizza Hut store) and two delcos (delivery
stores) were closed. There were also two Starbucks Coffee stores closed at
lease end. KFC closed one store that was destroyed in the Christchurch
earthquake.
KFC
2012
$m 2011
$m Change
$m Change
(%)
Sales 236.3 235.8 +0.5 +0.2
EBITDA 45.6 52.1 -6.6 -12.6
EBITDA as % of Sales 19.3 22.1 - -
Despite very difficult trading conditions, aggressive competitor activity and
the impact of the Christchurch earthquake KFC managed to grow sales to a new
high of $236.3 million, an increase of $0.5 million or 0.2%. The earthquake
cost the brand approximately $3 million in lost sales with temporary closures
of a number of stores and the permanent closure of one store.
On a same store basis however, sales fell by 1.8% compared with 4.4% same
store growth in 2010/11 and 9.2% in 2009/10.
Input costs increased markedly over the year while the competitive
marketplace limited KFC's ability to pass these costs (and the full amount of
the October 2011 GST increase) on to customers. EBITDA fell by $6.6 million
to $45.6 million (19.3% of sales). Margin pressures were most pronounced in
the first half, but showed some recovery in the second half through cost
reductions and a move to better margin products in the sales mix.
Innovation and burger promotions continued this year and provided sales
growth in key market segments. The KFC Double Down promotion in the first
quarter was very positive for sales but it cannibalised higher margin
products. However, the customer mania fuelled by social media and word of
mouth around this innovative burger outstripped all expectations and it has
contributed significantly to KFC brand awareness.
KFC Grilled was launched early in the year providing innovation and a unique
flavour platform in fresh chicken, Sparklers - a flavoured carbonated
beverage was introduced along with the limited time offer Buster Burger (a
customer inspired burger) as well as range extensions to the Krusher liquid
snack beverage platform.
Five KFC stores were refurbished over the year bringing total transformed
stores to 59 or 2/3 of the total network. Total store numbers reduced to 88
with the permanent closure of the Christchurch CBD store following the
earthquake.
Pizza Hut
2012
$m 2011
$m Change
$m Change
(%)
Sales 45.5 59.3 -13.8 -23.3
EBITDA 2.1 5.6 -3.5 - 62.8%
EBITDA as % of Sales 4.6 9.5 - -
The Pizza Hut business continued to struggle in a fiercely competitive and
tough retail environment. A very soft start to the year began to improve as
the year progressed but the outcome saw same store sales for the year at
-9.7%.
Total sales revenue was down $13.8 million to $45.5 million of which $5.9
million was as a result of sale of stores to independent franchisees. There
were also three store closures. Pizza Hut sold a further eight stores to
independent franchisees over the year bringing the total number of
independents to 13 at year end. Year end store numbers were therefore 71, 11
down on prior year.
The combined effect of lower absolute sales as a result of store disposals,
lower same store sales and higher input costs, notably higher cheese costs,
was a cut in EBITDA to $2.1 million (4.6% of sales), down $3.5 million on the
previous year's $5.6 million (9.5% of sales).
During the year, Pizza Hut introduced innovation with the Mediterranean Mia
as well as meal bundles such as The Footy Feast Meal and Big Box offering
strong value for groups. More 4 All and the Big New Yorker were brought back
as a limited time offer during the year. Both offers remain continuing
favourites with Pizza Hut customers. The brand saw a strong demand for value
in its market segment and strong performing value promotions this year
included the return of The Slab as well as the $5.90 Everyday Value
promotions.
Starbucks Coffee
2012
$m 2011
$m Change
$m Change
(%)
Sales 26.5 29.3 -2.9 -9.8
EBITDA 3.7 4.1 -0.4 -8.8
EBITDA as % of Sales 14.2 14.0 - -
Starbucks Coffee suffered in relative terms more than the other two brands as
a result of the Christchurch earthquake. Three of the four Christchurch
stores were closed and look unlikely to re-open. The net impact of these
closures amounted to $2.5 million of the $2.9 million drop in sales. Two
more store closures took place over the year with Newmarket and Botany Kiosk
stores closing at respective lease ends.
Whilst total sales were down to $26.5 million because of the earthquake, same
store sales finished positive for the year at +5.4%.
Starbucks Coffee continued to introduce new seasonal variants to its beverage
ranges this year including the Toffee Nut and Gingerbread flavours in latte
and Frappucino ranges as well as refreshing the fresh food offer in stores.
Despite some cost increases, Starbucks continued to exercise solid
operational controls and finished the year with EBITDA at $3.7 million (14.2%
of sales), marginally down on last year's excellent result of $4.1 million
(14.0% of sales).
Of the 35 stores at year end only 32 have been effectively trading with the
three earthquake affected stores in Cashel Mall, Cathedral Square and Colombo
Street remaining closed.
Corporate and Other Costs
G&A (above store overheads) at $11.3 million were $1.4 million (11.1%) better
than prior year and only 3.7% of sales (2011: 3.9% of sales). The bulk of
the savings arose from a reduction in variable remuneration costs with a
lower profit performance on prior year, together with increases in cost
recovery for G&A services provided to independent franchisees.
Group non-trading charges of $2.3 million ($2.0 million in 2011) included a
pro rata write off of goodwill following Pizza Hut store disposals ($1.5
million), Pizza Hut and Starbucks Coffee store closure costs (mainly fixed
asset write offs) of $0.6 million and KFC transformation write offs of $0.2
million.
Depreciation charges at $13.6 million were $1.0 million up on the prior year
reflecting increased capital expenditure in KFC (up $2.0 million), offset by
lower charges in the other two brands with store closures and disposals.
Interest and funding costs at $1.3 million were up $0.1 million on prior year
with the company carrying similar debt levels. Bank interest rates
(inclusive of margins and fees) for the year averaged 4.6% compared with 4.8%
in 2010/11.
Cash Flow and Balance Sheet
Lower profitability and some negative working capital movements saw a
reduction in operating cash flows for the year to $29.8 million, down $10.8
million on prior year.
Investing cash outflows were reduced to $14.3 million from $20.4 million, a
reduction of $6.0 million on the prior year as there was some easing off of
the tempo of capital expenditure in the KFC business. Only five KFC stores
were transformed over the year compared with nine transformations and four
new KFC stores in the 2011 year. The positive inflow from store disposals
also reduced from $4.3 million to $2.1 million with no sale and leasebacks of
new KFC stores this year.
Financing cash outflows were reduced to $15.6 million versus $20.3 million in
the prior year. The bulk of the change arose from a change in borrowings
with $5.5 million retired in debt last year versus increased borrowings of
$1.4 million in the current year. Dividend payments were also up as the cash
flow impact of last year's declared final higher dividend flowed through to a
payment in the current year. Bank debt is up slightly to $13.6 million from
$12.2 million, but remains well within facility limits of $35 million.
Total assets at $104.9 million were down $6.5 million on last year, with a
$4.6 million decrease in fixed asset values mainly comprising Pizza Hut asset
disposals and goodwill write downs following the sale of stores to
franchisees.
Total liabilities were also down by $7.3 million to $45.1 million with a
significant reduction in creditors of $6.3 million, mainly around timing
differences, reduction in bonus accruals and creditors.
Year end shareholders' funds of $59.8 million were marginally ($0.9 million)
up on prior year largely in retained earnings.
The balance sheet remains very conservative with a gearing ratio of 19%
(2010: 17%).
Christchurch Earthquake
As has already been seen, the major earthquake in Christchurch on 22 February
2011 and subsequent tremors over the year have had a significant impact on
the company's operations in that city with all nineteen of the company's
stores in the city being closed for some time.
The worst hit were the Starbucks Coffee operations with only one store of the
four in that city surviving the earthquake (although only one of the three
closed stores (all in the CBD) has officially been declared unusable). The
only other permanent closure was the KFC store in the Christchurch central
business district which has now been demolished.
Insurance policies were in place for both material damage and business
interruption cover and the company has received progressive payments on
claims under these policies over the course of the year. The business
interruption cover expired on 22 February 2012, but trading losses for the 12
months to that date have been fully met by the insurers.
Pizza Hut Franchise Sales
The Pizza Hut store sales programme has continued over the year with a
further eight stores sold to individual franchisees, bringing the total
number of Pizza Hut independent franchisees in the system to 13. The
strategy remains to sell stores with smaller sales volumes, particularly in
regional areas where an independent franchisee can make a successful business
on a smaller sales base with a more personal approach to running the store.
There has been no turnover of these new franchisees, indicating that the
independent operator model is working for them.
Carl's Jr
In December 2011 the company entered into franchise and development
agreements with CKE Restaurants Inc in the US, giving Restaurant Brands the
exclusive rights to the Carl's Jr brand throughout New Zealand and shared
rights to develop stores in the Auckland region.
Carl's Jr is an exciting new burger brand with in excess of 1,000 stores in
the United States and it is just commencing international expansion in
earnest. It specialises in offering best-in-class premium-quality burgers
with a marketing proposition that targets youthful demographics. Carl's Jr.
restaurants offer unique service attributes focusing on 'partial table
service', with a 'made-to-order' menu, all-you-can-drink beverage bars, and a
strong breakfast offering.
Dividend
Directors have declared a final fully imputed dividend of 9.5 cents per
share. The continuing strong cash flows and low levels of debt mean that
dividend levels have been sustained at close to prior year with the resultant
full- year dividend totaling 16.0 cents per share, compared with 17.0 cents
in 2011.
The 9.5 cents dividend will be paid on 29 June 2012 to all shareholders on
the register as at 15 June 2012. A supplementary dividend of 1.676 cents per
share will also be paid to overseas shareholders on that date.
The dividend re-investment plan remains suspended for this dividend.
Outlook
Whilst down on what was a stellar year last year, the underlying performance
of the company remains strong. Directors believe that current levels of
profitability will be maintained in the face of continuing tight trading
conditions and soft retail environment through a continued focus on
efficiency and cost reductions, together with new marketing initiatives.
The KFC brand is moving into the last phase of the transformation process
with 59 stores out of the 88 in the network now transformed and another eight
scheduled for upgrades in the coming year. The transformed stores will
continue to hold the sales increases generated on original transformation,
but there will be some tapering off in the rate of growth. There still
remains the opportunity for more store growth (and relocations) with two new
stores planned for the new year.
Pizza Hut will continue to face an intensively competitive marketplace.
Whilst same store sales were down over the whole year, there was an
improvement over the back half and this is expected to continue. Continued
focus on operating controls and some supply chain improvements together with
the continued sale of smaller stores is expected to produce slightly better
margins. Store sales to independent franchisees will continue with eight to
ten stores expected to be sold over the coming year.
The Starbucks Coffee business is expected to maintain steady same store sales
growth trend with similar levels of profitability. There will be some
capital invested in store refurbishment and some work will be undertaken on
network development.
The new Carl's Jr brand will see three to four stores opening in the second
half of the year. All stores are expected to be immediately profitable, but
some set up costs at the G&A level will be incurred in establishing the
business.
Directors consider the 2012 profit performance to be satisfactory in the
current tough economic environment. The company is expected to produce a
result of at least the same level in the year ahead.
Annual Shareholders' Meeting
The Annual Shareholders' Meeting for the company will be held in Auckland on
29 June 2012.
For further information please contact:
Russel Creedy Grant Ellis
CEO CFO/Company Secretary
Phone: 525 8722 Phone: 525 8722
ENDS
About Restaurant Brands:
Restaurant Brands New Zealand Limited operates the New Zealand outlets of
KFC, Pizza Hut and Starbucks Coffee. These brands - three of the world's
most famous - are distinguished for their product, look, style and ambience,
service and for the total experience they deliver to their customers in New
Zealand and around the world.
RESTAURANT BRANDS GROUP
Consolidated Income Statement
29 February 2012 vs Prior 28 February 2011
Audited % Audited
$NZ000's
Continuing operations:
Sales
KFC 236,284 0.2 235,805
Pizza Hut 45,477 (23.3) 59,266
Starbucks Coffee 26,452 (9.8) 29,313
Total sales 308,213 (5.0) 324,384
Other revenue 714 38.4 516
Total operating revenue 308,927 (4.9) 324,900
Cost of goods sold (252,706) 1.6 (256,746)
Gross margin 56,221 (17.5) 68,154
Distribution expenses (3,088) 10.8 (3,461)
Marketing expenses (15,087) 0.8 (15,204)
General and administration expenses (11,333) 11.1 (12,743)
EBIT before non-trading 26,713 (27.3) 36,746
Non-trading (2,316) (13.1) (2,047)
EBIT 24,397 (29.7) 34,699
Interest income 1 (90.9) 11
Interest expense (1,307) (10.6) (1,182)
Net profit before tax 23,091 (31.1) 33,528
Taxation expense (6,164) 35.2 (9,511)
Net Profit after tax (NPAT) from continuing operations 16,927 (29.5) 24,017
Discontinued operation:
Profit from discontinued operation net of tax * - (100.0) 295
Total profit after tax (NPAT) 16,927 (30.4) 24,312
Total NPAT excluding non-trading 18,361 (26.8) 25,072
% sales % sales
EBITDA before G&A
KFC 45,553 19.3 (12.6) 52,125 22.1
Pizza Hut 2,099 4.6 (62.8) 5,637 9.5
Starbucks Coffee 3,744 14.2 (8.8) 4,104 14.0
Total 51,396 16.7 (16.9) 61,866 19.1
Ratios
Net tangible assets per security (net tangible assets divided by number of
shares) in cents 39.8c 37.6c
* Pizza Hut Victoria is a discontinued operation.
Cost of goods sold are direct costs of operating stores: food, paper,
freight, labour and store overheads.
Distribution expenses are costs of distributing product from store.
Marketing expenses are call centre, advertising and local store
marketing expenses.
General and administration expenses (G&A) are non-store related
overheads.
End CA:00221498 For:RBD Type:FLLYR Time:2012-04-03 09:44:20
