Restaurant Brands Announces Full Year Results

6TH April 2006

Restaurant Brands Announces Full Year Results

Restaurant Brands’ Group Net Profit after Tax, excluding non trading items, for the year ended 28 February 2006 was $10.5 million, compared with $11.0 million in the prior year - a decrease of 4.7%.

The company announced that after careful evaluation of various options it had decided to exit the Pizza Hut Victoria business through a progressive sell down of its 50 stores to independent franchisees over the next 12 months. This has resulted in a pre-tax write-down of the investment of $7.0 million including goodwill of $2.9 million taken in the half year accounts.

The overall reported profit result after taking up these non-trading items was $3.4 million.

The KFC and Starbucks Coffee operations enjoyed higher levels of both sales and profitability, but the Pizza Hut New Zealand business saw a decline in profit. Total store EBITDA was up on the prior year at $45.2 million, maintaining a 14.3% margin.

Chief Executive Vicki Salmon said, “We were pleased with the positive sales growth over the year from all of our New Zealand operations, especially KFC and Starbucks Coffee, despite the competitive pressures felt by Pizza Hut.”

Total sales were $316.4 million, an increase of $0.9 million or 0.3% for the year (or 2.1% on a 52 week comparative basis). Both KFC and Starbucks Coffee showed positive same store sales growth of 1.9% and 2.6% respectively. The Pizza Hut businesses saw a decline in same store sales of 2.9% for Pizza Hut New Zealand and 3.8% for Pizza Hut Victoria.

“Our focus on store development continued with store numbers increasing to a high of 289. Pizza Hut New Zealand and Starbucks Coffee opened six stores each and KFC added two new stores.

“We are very pleased with the KFC brand transformation project which has delivered significant sales growth in the seven stores that have been transformed.”

Directors announced a final dividend of 5.5 cents per ordinary share to be paid on the 16 June 2006 all shareholders. This brings the total dividend for the year to 10.0 cents, maintaining the same level paid over the previous six years.

KFC
KFC sales were up 1.1% over prior year (up 1.9% on a same store basis) to $171.8 million which was the result of good operating disciplines, an improved marketing calendar and the increasing impact of the brand transformation project. KFC earnings also improved strongly with EBITDA at $29.4 million, up $1.6 million or 5.9% on the prior year.

“KFC has been in New Zealand since 1971 and is iconic to our lifestyle,” said Salmon. “Early in 2004 we looked at the brand and decided that in order to build on this heritage and continue growing our market share we needed to revitalise the KFC image.”

“After successful testing of our brand refurbishment concept in Hamilton, we rolled out the programme to another six stores with commensurate improvements in store sales and profit performance. Subject to continuing positive results, we plan to rollout the programme over most of the stores over the next two to three years,” she added.

As part of the transformation programme, KFC has also recommenced new store builds opening two stores in Kaikohe and Taihape during the year, bringing store number to 88 at year end.

Pizza Hut New Zealand
The Pizza Hut New Zealand business, whilst continuing to grow and maintain its market leadership position, has begun to feel the impact of cost pressures and an increasingly competitive environment.

Total sales of $89.1 million were up 3.6% above the prior year on a comparative weekly basis. Sales were largely driven by continued new store growth with same store sales for the year declining 2.9%. EBITDA moved from $13.6 million to $12.2 million.

“Continuing competitive pressures, cannibalisation from new store growth and a light promotional calendar affected Pizza Hut’s final quarter impacting on the overall sales result. This week we launched a new marketing campaign designed to combat this and reinforce our position as market leader in the New Zealand pizza market and drive sales,” said Salmon.

Four existing stores were relocated to better premises and six new delco stores were built during the year, bringing total store numbers at year end to 107.

Starbucks Coffee
Another year of strong growth was recorded by the Starbucks Coffee business. Continuing solid store operations, innovative product offerings and new store development assisted in delivering a 14.4% increase in sales on a comparatively weekly basis to a high of $27.9 million for the year. Same store sales grew 2.6%.

Brand profitability also improved despite increases in lease costs and labour pressures. Starbucks Coffee EBITDA for the year was $3.9 million, up 6.3% on prior year.

“Starbucks Coffee continues to be a star performer delivering nine solid quarters of same store sales growth – an outstanding result. Starbucks Coffee New Zealand has also been recognised internationally for our local marketing activity, which has positively affected store sales,” commented Salmon.

Store development continued with six new stores opened over the year, bringing the total stores to 44.

Pizza Hut Victoria, Australia
The Pizza Hut business in Victoria, Australia, has continued to improve its operational performance, but has simply not been able to generate sufficient sales to produce a sustainable financial result. Store level profitability dropped back from a marginal profit last year to a small EBITDA loss of $0.3 million.

Sales for this division fell 4.9% on a comparatively basis to $A25.5 million (NZ$27.6 million). Same store sales, which exclude the impact of foreign exchange movements, declined 3.8%.

Store numbers reduced by one to 50 with the closure of one store at lease end.

“The board has reviewed the ongoing performance of Pizza Hut Victoria and the company has decided to sell the business back to independent franchisees. We will be completing this process over the next 12 months. This will allow Restaurant Brands to focus on the New Zealand operations where we can generate superior returns,” commented Salmon.
Outlook
“Due to the softer economic environment the company is expecting tighter trading conditions in the coming year. We plan to build on the success of the KFC transformation programme, implement an aggressive marketing calendar for Pizza Hut, complete the exit of Pizza Hut Victoria and continue with our marketing initiatives for Starbucks Coffee,” concluded Salmon.

ENDS

Note: The current financial year comprised 52 weeks, vs 53 weeks in the prior year. The prior year comparisons unless otherwise stated are therefore on a longer trading period (by a week).

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