Restaurant Brands Delivers Profit Growth

7 April 2005

Restaurant Brands Delivers Profit Growth For Full Year

Restaurant Brands delivered a 33% increase in Group Net Profit after Tax (excluding non trading items) to $11 million for the financial year ended 28 February 2005.

All four of the company’s divisions reported profit improvements over the prior year with total store EBITDA (earnings before interest, tax, depreciation and amortisation) increasing 11.9% to $45.2 million and margins increasing from 13.3% to 14.3%.

Chief Executive Vicki Salmon said this significant improvement was the result of a back to basics strategy that delivered improved operational efficiencies and cost savings in all four divisions.

“Over the past year, we have taken a fresh look at all our businesses, implementing new operating procedures and achieved cost savings where possible and we are only now beginning to see the rewards,” she said.

“We are also clearly focused on expanding our store footprint, opening 14 new stores during the fiscal year and bringing us to a record 278 stores in operation at year-end.”

The profit increase was on the back of solid sales growth for Restaurant Brands with total sales of $315.5 million, an increase of 3.6% on the prior year. Three divisions delivered positive same store sales growth with Pizza Hut New Zealand showing a slight (0.7%) decline due to the impact of building a number of infill stores.

“With our planned store development programme, improved customer service levels and consistent product offerings, we are confident that we can maintain our sales momentum in the current year.

“However, we expect greater pressure on margins as a result of an increase in labour and facility costs. Despite these pressures, we currently expect to produce a slight improvement in our profit result in the current financial year.”

Directors announced a final dividend of 5.5 cents per ordinary share, to be paid on 10 June 2005 to all shareholders on the register at 5.00pm on 27 May. This brings the total dividend for the year to 10.0 cents the same level as paid for the past five years.

KFC

After a year of rebuilding, KFC EBITDA increased 8.5% to $27.8 million and margin rose from 15.0% to 16.1%.

“During the year, we successfully reduced our costs primarily through the renegotiation of supply agreements and the transition to a new chicken supply contract. These benefits were however largely offset by the significant escalation in labour costs resulting from changes in minimum wage and holiday pay legislation and an increase in chicken prices as a result of higher feed costs,” said Salmon.

She said innovative new product releases, together with significant improvements in product quality and customer service levels drove the 1.1% increase in total sales over the prior year (0.1% on a same store basis) to $173.1 million.

“We are excited about the prospects for the KFC brand following the successful trial of a new brand refurbishment programme in our Frankton, Hamilton store. Our second in Mangere East opened in March and our Hamilton East store closed recently for refurbishment. This programme, which combines a major store upgrade with menu changes and staff retraining, will be rolled out to more stores during the current year.”

Pizza Hut New Zealand

Despite the increasingly competitive environment, Pizza Hut New Zealand delivered an improvement in EBITDA margin from 15.1% to 15.6% for the full year. Total EBITDA improved 10.8% to $13.6 million for the year.

“We are very pleased with the performance at Pizza Hut New Zealand. This result was achieved through operating efficiencies, lower supply costs and sales leverage, which was offset by a substantial increase in cheese prices and labour costs during the last quarter.”

Total sales increased 7.7% to $87.6 million and were largely driven by an accelerated new store roll out programme.

“That result is pleasing given it is on top of a 7.4% increase in sales achieved last year.”

Ten new delivery and takeout stores were constructed bringing total store numbers at year-end to 101.

Starbucks Coffee

During the year, Starbucks Coffee delivered a 21.7% increase in EBITDA to $3.7 million with margin improving from 13.2% to 14.9%.

“We are particularly pleased with the operating efficiencies achieved at Starbucks which are now delivering margins comparable to our other two New Zealand brands,” said Salmon.

Improvements in store operations and innovative product offerings contributed to the 7.8% increase in Starbucks sales bringing it to a new high of $24.9 million for the year. This represented same store sales growth of 3.6%.

Store development continued at a measured pace with four new stores opening over the year, bringing the total to 39. The company will continue to open stores this year in line with its store development plan.

Pizza Hut Victoria, Australia

For the first time, Restaurant Brands Australia was profitable at the store EBITDA level, producing its first profit of $NZ40,000 for the year.

“While we continue to make steady improvements in this business, in a tough environment, it is still not performing to our expectations,” said Salmon.

Sales for this division rose 5.6% for the year to a new total of $A27.3 million (NZ$30.0 million). Same store sales improved 3. 8%.

The operation continues to see improvements in its key performance indicators leading to higher levels of customer trial and retention.

Store numbers reduced by 1 to 51.

ENDS

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