29 June 2005 - Takeover Isn't Slowing Pizza Hut's Expansion Plans

18 December 2003 - Restaurant Brands Appoints New CEO

7 October 2003 - Half Yearly Results Announcement 2004

20 August 2003 - Staff Announcement - General Manager KFC

20 August 2003 - Staff Announcement - General Manager Pizza Hut New Zealand

8 July 2003 - Restaurant Brands CEO Returns to Australia

8 April 2003 - Directors' Report to Shareholders end 28 February 2003

16 December 2002 - Major Cost Reductions for Restaurant Brands

17 October 2002 - Half Year ended 9 September 2002

20 March 2002 - Restaurant Brands New Zealand Limited Acquires 51 Pizza Hut Outlets in Victoria, Australia

16 January 2002 - Trading Results for the Year ended 30 November 2001

10 December 2001 - KFC Sale and Leaseback Programme Completed

31 October 2001 - Restaurant Brands Sale and Leaseback of KFC Properties

24 July 2001 - Interim Profit Announcement for the 28 weeks ended 18 June 2001

11 April 2001 - Announcement of New Directors

17 January 2001 – Trading Results for the Year Ended 30 November 2000

19 July 2000 - Interim Profit Announcement for the 28 weeks ended 12 June 2000

19 April 2000 - Pizza Hut Doubles in Size Following Restaurant Brands Acquisition of Eagle Boys

A combination of stronger than expected trading over the last quarter of the year (especially from its KFC stores) and the successful resolution of a pricing review with a major supplier has meant that the company will deliver a trading result ahead of previous expectations for the year. Restaurant Brands now anticipates its full year net profit after tax (excluding non trading items) for the year ended 28 February 2010 will be in the vicinity of $19.5 million (20 cents per share). This will represent an improvement of $7.8 million or 67% on the prior year’s result.

The annual profit announcement will be made on 7 April 2010.

Restaurant Brands NZ Limited advises that, because of stronger than expected trading results, its profit forecast (excluding non trading items) for the year ended 28 February 2010 has been increased to $17.5 million (18 cents per share). This will represent an improvement of $5.8 million or 50% on the prior year’s result.

The third quarter sales results will be released on 16 December.

• Net Profit after Tax for the half year (excluding non-trading items) was $9.2 million (89.4% up on prior year). Reported profit (including non-trading items) was $8.9 million, up 240% on prior year.

• Total revenues of $169.9 million were 4.6% up on prior year, with same store sales up 6.7% for the half, still driven primarily by KFC.

• Non-trading items were only $0.5 million, down from $3.2 million in the prior year.  No further impairment charge to the carrying value of goodwill on the Pizza Hut business was required this year ($2.5 million last year).

• Margins in both KFC and Pizza Hut businesses were up $5 million and $1 million respectively as the benefits of improving sales and reduced input costs flowed through.

• Directors have declared a fully imputed interim dividend of 4.5 cents per ordinary share payable on 20 November 2009, up 50% on last year.

Restaurant Brands’ unaudited net profit after tax (excluding non-trading items) for the half year ended 14 September 2009 was $9.2 million, 89.4% up on the prior year result of $4.9 million[1] and slightly above previous market guidance of $8.7 million.   Reported profit was $8.9 million or 9.1 cents per share, 240% up on prior year. 

The increase in reported profit largely arose from the fact that the company was not required to take up any further impairment charge to the carrying value of goodwill on the Pizza Hut business ($2.5 million in the previous half year).  This is reflective of the improved underlying performance of the Pizza Hut business over the first half of the year. 

KFC and Pizza Hut enjoyed some improvements in margin over prior year by $5 million and $1 million respectively.  Incremental leverage from higher sales, better operational efficiencies and some reduced input costs all assisted in improving brand EBITDA.

Total operating revenue at $169.9 million was 4.6% up on prior year, with both KFC and Pizza Hut sales growth partially offset by a decline in Starbucks Coffee sales.  Total group same store sales however continued to grow at 6.7% for the half.

Directors are pleased with the improved performance in what has been a challenging economic environment.  

The KFC business continued its strong growth on the back of its transformation programme, with total revenues of $118.2 million, up 7.1% on prior year and 8.8% on a same store sales basis.  A strong pipeline of new product and promotional activity contributed to the strong sales growth.  The first half saw the successful launch of the Popcorn Chicken Roller, new meals such as the Ultimate Burger Meal with Wicked Wings and return of old favourites such as Hot & Spicy and the legendary KFC Tower Burger.

With leverage from strong sales levels, continued operational efficiencies and a tight focus on input costs the KFC business managed to produce a solid improvement in EBITDA for the half year.  KFC’s EBITDA at $24.0 million (20.3% of sales) was $5.0 million (26.1%) up on prior year. 

Three stores were transformed over the half year, being Alexandra, Whakatane and Quay Street (Auckland) with all performing to expectations.

A total of 37 stores have now been transformed of the 84 stores in the network, with another three stores expected to be completed by year end bringing the total transformations to almost 50% of the total. One new store will be opened in Greenlane (Auckland) by year end.

KFC store numbers are three down on prior year at 84.

The Pizza Hut business has begun to show signs of a turnaround in sales and earnings.  It delivered same store sales growth of 5.2% for both the first and second quarters of the year, the first growth in the brand’s sales for nearly four years.  Pizza Hut achieved sales of $35.4 million for the half, which were up 2.4% in total and 5.2% on a same store sales basis.

A number of new marketing initiatives were undertaken in producing this sales growth.

The business continues to be run very tightly. Strong operational controls over wastage and labour, loss prevention initiatives and some changes to menu with higher margin products have all assisted in improving margin.  These activities, together with the leverage from higher sales growth, all assisted in producing a resulting EBITDA of $2.2 million for the half, which was $1.0 million or 85.9% up on prior year.

The company concluded an agreement with Yum! Restaurants International on the future of the Pizza Hut brand in New Zealand in June of this year.   As previously explained, this agreement provides for Restaurant Brands' continued franchise of the brand, but with greater flexibility to sell down to independent franchisees.  Directors believe that this is a most satisfactory outcome, enabling the company to maximise its return on its investment in the brand through retention or divestment. 

Pizza Hut finished the half with 92 stores, of which seven were red roof restaurants.

Continued weakness in coffee and food sales hampered the Starbucks Coffee performance for the half year. With total sales of $16.1 million, down 7.1% on the prior year and 3.8% on a same store basis, this business lost some traction.

The lower sales also hampered profitability, with EBITDA of $1.4 million down $0.3 million or 17.4% on the previous year.

With management changes, a tighter emphasis on store efficiencies, a new food programme and the benefit of a higher exchange rate, it is planned to restore sales growth and profitability back to this brand by year end.

Store numbers at 42 did not change over the half, but were two down on the prior year.

General and administration expenses at $7.0 million were up 26.3% on the prior half year.  This has largely arisen from some headcount increases as the underlying businesses have grown, and higher levels of incentive payments as the company enjoys higher levels of profitability. G&A costs, however, represent only 4% of total revenues.

Interest expense at $0.8 million continues to fall ($1.6 million down) against prior year as Restaurant Brands continues to see significantly lower borrowing levels and interest rates.

Non-Trading Costs

Non-trading items of $0.5 million were considerably lower than last year’s $3.2 million.

Last year’s non-trading items included a $2.5 million impairment charge taken up on the Pizza Hut business. With the turnaround in operating performance, there is currently no requirement to take up any further write downs.

Total assets at $100.9 million were flat versus the previous year end, with property, plant and equipment at $71.4 million versus $71.8 million at year end.  Capital expenditure essentially matched depreciation charges and there were no substantial write downs on intangibles.  Total liabilities at $58.6 million were $5.4 million down on the full year balance, with the $7.9 million increase in creditors more than offset by the $14.6 million reduction in borrowings.  

Debt levels continued to reduce, with total borrowings at $19.8 million at the half year, compared with $34.4 million at previous year end and $40.8 million for the previous half year.

Operating cash flows of $23.4 million were strongly up on the previous half year’s $10.5 million, in line with the improved profitability and some timing differences in creditors’ payments. 

Cash outflows from investing activities were $4.5 million compared with $5.0 million for the first half last year. KFC store transformation expenditure was the most significant item in the capital budget for the half year.   

The improved profit performance and stronger balance sheet has led directors to declare an interim dividend of 4.5 cents per share (50% up on last year). 

The dividend will be paid on Friday 20 November 2009 to all shareholders on the register at 5pm on Friday 6 November 2009.  For overseas shareholders, a supplementary dividend of 0.79412 cents per share will be paid at the same time. 

Directors have elected to continue to suspend the dividend reinvestment plan for the time being, but will review this again prior to the declaration of the final dividend.

The KFC business will continue to deliver solid profits into the second half year, but it will be rolling over some very strong second half results for the prior year.  Pizza Hut is expected to continue the positive sales growth trend of the previous two quarters and maintain the margin improvements of the first half.  An improvement in the Starbucks Coffee business in sales and margin is also expected towards the end of the financial year.

KFC transformation spend will continue with another three stores to be transformed by year end. As previously announced, a small number of Pizza Hut stores will be sold to franchisees over the next few months.

Directors anticipate that the company will make a full year profit (excluding non-trading items) in the vicinity of $15 million for the 2009/10 year.

Restaurant Brands announces that it now anticipates its half year net profit after tax (excluding non trading items) for the 28 weeks ending 14 September 2009 to be in the vicinity of $8.7 million. This will be a $4.1 million (or 87%) increase on the first half last year’s result.

The improved profitability largely arises from sustained strong sales growth in the KFC brand and a continued turnaround in the financial performance of the Pizza Hut business.

The full year result is anticipated to be in the vicinity of $15 million, which is also an improvement on prior year’s $11.7m.  The company will be rolling over a strong second half result for the prior year and hence the second half performance lift for the current year is not expected to be as strong.

The second quarter sales announcement will be made on 23 September and the half year profit announcement will be on 16 October.

·       Group Net Profit after Tax (excluding non trading items) was $11.7 million (12.1 cents per share), up $1.4 million or 13% on prior year, mainly because of the strong result for KFC. 

·         Reported Net Profit (including non trading items – primarily Pizza Hut impairment charges) was $8.3 million (8.5 cents per share) compared to $8.4 million in the prior year.  

·       Total revenues for the company were $309.6 million, up $5.6 million on prior year with same store sales up 1.6%. 

·       KFC achieved yet another sales record at $211.5 million (up 4.1% on a same store basis) with Starbucks Coffee flat at $33.0 million (up 3.6% same store). These were partly offset by lower sales of $64.6 million for Pizza Hut (down 6.5% same store).  

·        The KFC brand transformation continued its roll out with significant sales growth in the 34 transformed stores. 

·         Bank debt was down by $8.2 million (on top of the $6.1 million reduction in the prior year) as the company continued its debt reduction programme in the current economic environment.  

·         A final full year fully imputed dividend of 4.0 cents per share has been declared making a full year dividend of 7.0 cents, up 0.5 cents on prior year.

Directors are pleased to announce that the 2008/9 year has continued to be one of improved profitability for the company, primarily driven by further strong performance by the KFC business, although some benefit was derived from a change in accounting policy on prepaid advertising expenditure arising from the adoption of an amendment to the Accounting Standard relating to advertising.

Net Profit after Tax (excluding non trading items) was $11.7 million (12.1cps) compared to $10.4 million (10.7cps) in 2007/8.

Non trading costs of $5.0 million, being primarily impairment charges against goodwill in the Pizza Hut business brought reported NPAT (including non trading items) to $8.3 million (8.5cps), compared with $8.4 million (8.6cps) in the 2007/8 year.

Total store EBITDA for the year was down $0.5 million to $43.7 million. KFC’s improvement of $2.1 million to $38.0 million was completely offset by EBITDA reductions in Pizza Hut of $1.7 million and Starbucks Coffee of $0.9 million respectively.

Other significant improvements on prior year were in G&A (above store overheads) of $0.4 million and funding costs of $1.0 million.

Total sales of $309.1 million were up $5.6 million up on the previous year’s sales.  Same store sales for the group were up 1.6% (3.4% in 07/8).  Both KFC and Starbucks Coffee demonstrated continuing same store sales growth, up 4.1% (7.7% in 07/8) and 3.6% (4.0% in 07/8) respectively, but Pizza Hut New Zealand saw annual same store sales drop 6.5% (7.0% down in 07/8).

Year end store numbers at 219 were nine down on February 2008 following four Pizza Hut store closures (mostly as part of the red roof exit strategy), two Starbucks Coffee closures and three KFC closures (all at lease end). All closures have been margin positive.

KFC again grew both sales and margins with the momentum of the continuing brand transformation. Total sales reached a new record of $211.5 million, up $12.4 million on prior year and 4.1% on a same store basis (on top of 7.7% same store growth in 2007/8).

A further four stores were rebuilt over the year bringing total rebuilt or refurbished stores to 34, over one third of the total network.  Store numbers reduced to 84 with the closure of loss making stores at Wainuiomata, Manners Mall (Wellington) and Howick (Auckland) all at lease end.

Earnings were also up, with EBITDA improving by $2.1 million (5.8%) to $38.0 million (18.0% of sales).  The brand continued to improve its operational controls and benefit from volume growth leverage, despite the impact of substantial chicken price and labour cost increases.

The Pizza Hut business continued to face tough trading conditions with slow progress in arresting sales decline and building profitability.  Sales of $64.6 million for the year were down 6.5% on a same store basis.

The impact of the sales deleverage, together with continued cost increases and limited opportunity to pass these on saw further margin deterioration with the brand producing an EBITDA result of $2.8 million for the year, $1.7 million down on prior year.  

Pizza Hut continued to focus on margin management at lower sales volumes and improving sales in a very competitive environment. New product releases such as More-4-All and Triple Dippers helped address the sales decline as the year progressed with same store sales in the last quarter of only -1.2%.

Four stores closed over the course of the year.  These comprised two red roof restaurants in Tauranga and Invercargill as part of a wider exit strategy and two unprofitable delcos at Mana in Wellington and Mangere East in Auckland. Store numbers at year end totaled 93.

Starbucks Coffee revenues were flat on prior year at $33.0 million with two store closures, but up by 3.6% on a same store basis. Two stores at Bayfair (Tauranga) and Pakuranga (Auckland) were closed (at lease end) over the year bringing store numbers at year end to 42.

Despite the satisfactory sales result, the Starbucks business was severely impacted by significant price increases for raw materials and continued increases in labour costs. The rapid deterioration in exchange rate significantly added to the cost of coffee and other imported materials. A number of initiatives are under way to address this problem for the new year.

The impact of higher costs on a flat sales base saw a reduction in EBITDA to $2.9 million, down 23.6% on prior year.

Above store overheads (G&A costs) at $10.6 million were down $0.4 million on prior year and are running at 3.4% of sales compared with 3.6% in 2007/8 and 3.8% in 2006/7. Reductions in staff costs accounted for most of the saving.

With a slowing of the tempo in KFC transformation capital expenditure depreciation charges for the year were held at a similar level as the previous year at $12.4 million.

Non trading charges of $5.0 million included $0.5 million in fixed asset write offs arising from the KFC transformation programme, $0.4 million in write offs from Pizza Hut store closures (largely red roofs) and a further $3.7 million in Pizza Hut goodwill impairment charges following a review of the carrying value of this investment. 

Interest and funding costs at $3.9 million were $1.0 million down on prior year with the company benefiting from both lower debt levels and the continued fall in interest rates.

Despite the increase in reported profit, operating cash flows for the year at $23.3 million were down on prior year. This was largely because of working capital movements and increased taxation.

Investing cash flows of $8.1 million were $10.4 million down on prior year, reflecting a reduction in the pace of KFC transformation spend as the company faced up to the current economic environment and reached its contracted $35 million target with Yum.  The capex levels in 2007/8 also had $3.1 million in franchise renewal fees that were not repeated in the current year.

The improved free cash flow position has meant that total bank borrowings reduced by $8.2 million over the year (in addition to the $6.1 million reduction in 2007/8) with closing bank debt of $34.3 million, well within current facility limits of $55 million.

Total assets at $101.1 million were down on the $112.0 million at last year end, reflecting the $3.7 million in Pizza Hut impairment charges and the differential between lower capital spend and depreciation expense over the year.

The company is close to finalising an agreement with Yum that will provide a positive way forward for the Pizza Hut business. An announcement is expected to be made within the next month.

With the issue of an amendment to NZ IAS38 (Intangible Assets) the company reviewed its policy on prepaid advertising expenditure. Whereas it previously treated expenditure on the development of advertising material such as television advertisements as a prepayment and spread the cost over the life of the advertisement, it now expenses these costs at the time the advertisement is made. This resulted in a transfer of these costs between the 2007/8 and 2008/9 years with a consequent restatement of last year’s trading results. The net impact in the 2008/9 year is an improvement in Net Profit After Tax of $0.7 million (and a corresponding reduction in the prior year result).  

After eight years on the board, Shawn Beck has decided to stand down as a director at the Annual Shareholders’ Meeting in June. The board acknowledges the excellent contribution he has made to the company during this time.

The company has produced an adequate overall performance for the current year (despite some continuing issues in the Pizza Hut and Starbucks operations). Directors believe that the continuing improved performance of the company should be reflected in an increased return to shareholders and have accordingly declared a final dividend of 4.0 cents per share. This brings the total dividend for the year to 7.0 cents from 6.5 cents last year.

The dividend will be paid on 26 June 2009 to all shareholders on the register as at 12 June 2009.  A supplementary dividend of 0.70588 cents per share will also be paid to overseas shareholders on that date.

The dividend will be paid as fully imputed.

The dividend reinvestment plan will remain suspended for this dividend.

Whilst this year’s trading results must be considered satisfactory in the current environment and continue to show improvement over the past two years’ performance, directors remain cautious as to next year’s outcomes.

Investment in the KFC brand transformation programme will continue (together with pursuing new store opportunities) and this business is expected to continue to deliver sales growth.

Pizza Hut is expected to return to positive same store sales growth over the year, but continued competitive pressures and cost increases will limit any significant profit recovery. The company will be evaluating some potential store sales to independent franchisees and will continue its programme of unprofitable store closures, particularly of the red roof stores.

Starbucks Coffee is expected to continue its steady same store sales growth and produce a margin improvement on the current year.

The 2008/9 year has seen some profit improvement driven purely by the KFC business. Continued improvement in bottom line results requires this momentum to be sustained and both of the other brands to demonstrate a solid turnaround in their bottom line performance. This will not be easy in the current environment.

Restaurant Brands has demonstrated resilience in economic downturn and this is expected to continue, however given the current uncertain climate and existence of continued cost pressures, directors are expecting a similar profit performance in the new financial year.

Restaurant Brands announces that it anticipates making a full year profit (excluding non trading items) for the year ended 28 February 2009 in the vicinity of $11.0 million.

The company previously provided profit guidance at the half year for a NPAT (excluding non trading) of $9-10 million.  Restaurant Brands has enjoyed a more profitable end to the financial year than anticipated, with stronger sales and better margins, particularly from its KFC stores, some lowering of G&A overheads and significant reductions in funding costs.

A sales announcement will be made on 12 March and full profit release on 9 April.

• Net Profit after Tax for the half year (excluding non trading items) was $4.6 million (14.7% down on prior year).  Reported profit (including non trading items) was $2.4 million, down 47.3% on prior year.

• Total revenues of $162.5 million were 1.1% down on prior year, but same store sales were up 0.9% for the half, with KFC continuing to be the growth driver.
• Non-trading items of $3.2 million largely comprised an impairment charge of $2.5 million to the carrying value of goodwill on the Pizza Hut New Zealand business.
• Margins were impacted by continuing pressures on input costs with all three brands producing lower contributions than prior year.
• Directors have declared a fully imputed interim dividend of 3.0 cents per ordinary share payable on 21 November 2008, the same level as last year.

Restaurant Brands’ unaudited net profit after tax (excluding non-trading items) for the half year ended 8 September 2008 was $4.6 million, 14.7% down on prior year.  Reported profit was $2.4 million, down 47.3% on prior year. 

The reduction in reported profit largely arose from the taking up of an impairment charge to the carrying value of goodwill on the Pizza Hut New Zealand business of $2.5 million in the half year. 

All three brands suffered some margin decline against prior year, with continuing pressures on input costs, although this was mitigated somewhat by continuing tight controls in both store operations and G&A overheads.

Total operating revenue at $162.5 million was 1.1% down on prior year, with a 4.0% improvement in KFC sales offset by a $5.9 million or 14.7% reduction in Pizza Hut revenues.  Same store sales, however, continued to grow at 0.9% for the half.

Whilst the overall result is below prior year, directors are satisfied that this is an acceptable outcome in a tough retail environment with continuing inflationary pressures on input costs.

KFC sales continue to grow strongly on the back of its continuing transformation programme, with revenues of $110.4 million, up 4.0% on prior year on both a total and same store sales basis.  A strong pipeline of new product and promotional activity, including Original Recipe Fillets, Wicked Wings, Hot Rods, Favourites Bowl, Wrapstar and Summer Classic Burger, combined with improved facilities and enhanced customer service levels to produce another record sales result for the half year.

Despite the strong sales levels for KFC, the profit flow through was adversely impacted by higher input costs with substantial increases in chicken, other ingredients and labour, together with high levels of advertising spend.  Store closures during transformation also adversely impacted margins to some extent.

KFC’s EBITDA at $18.6 million (16.8% of sales) was $0.6 million (3.2%) down on prior year. 

Three stores were transformed over the half year, being Takapuna, Te Atatu and Fairy Springs (Rotorua). The Panmure store was closed for transformation during the half, reopening early in the third quarter.

A total of 33 stores have now been transformed of the 87 stores in the network, with the impact of the facility transformation continuing to positively benefit sales in non-transformed stores.

KFC store numbers remain constant on prior year at 87.

A shrinking pizza market, together with continued aggressive competitor activity, meant that Pizza Hut sales continued to decline.  The brand produced sales of $34.6 million for the half, which were down 9.4% on a same store sales basis, and 14.7% in total.

Store numbers were six down on prior year to a total of 94, with three stores closing over the half, being red roofs in Invercargill and Tauranga (as part of the red roof closure strategy) and a non-performing delco in Mangere East, Auckland. 

A number of new marketing initiatives were introduced over the period under review, including major menu upgrades, new product releases and a change of media and advertising agencies.  The brand is currently embarking on a new marketing campaign which recognizes the importance of the value message to its customers, and a revival of the extra large 14” Jumbo pizza has assisted in providing a point of genuine differentiation from competitors.

The intensely competitive nature of the pizza market has limited opportunities to recover input price increases, particularly in ingredient costs.  The business has been run very tightly, with strong operational controls over wastage and labour, which has helped limit the adverse profit flow through impact of the sales decline.  The resulting EBITDA of $1.3 million for the half was $1.1 million or 47.2% down on prior year.

There is continuing evidence that Pizza Hut’s competitors are also struggling with their profitability. Somewhat cushioned by the strong earnings of the KFC business, Pizza Hut will continue to compete aggressively in this very competitive environment.  In the meanwhile, directors continue discussions with the franchisor on alternative operating and ownership options for the brand.

Pizza Hut finished the half with 94 stores, of which eight were red roof restaurants.

A net reduction of two stores on the prior year meant that the Starbucks Coffee business was unable to sustain its record of total sales growth for the half year.  The Starbucks brand produced sales of $17.3 million, down marginally on the $17.4 million achieved in the prior year.

Same store sales growth, however, continued for the Starbucks brand at 4.4%, a pleasing result in the current economic environment.

The Starbucks business also struggled with increased costs, with both ingredients (food and milk) and higher labour costs impacting adversely on store margins.

Starbucks EBITDA of $1.7million for the year was 21% or $0.4 million down on the same period last year.

Store numbers at 44 did not change over the half.

General and administration expenses were down 7.7% on prior year, reflecting lower headcounts and staff costs in keeping with the tighter trading conditions.  Interest expense at $2.5 million was $0.2 million down on prior year, despite higher interest rates.

The remaining Pizza Hut Victoria store was settled early in the half with all winding up costs for this investment fully provided for.

Non trading items of $3.2 million were considerably up on last year’s $1.4 million.

The bulk of the increase was from a $2.5 million impairment charge taken up on the Pizza Hut New Zealand operations and closure costs associated with asset write-offs and make-goods from store closures of $0.7 million.

Total assets at $107.5 million were $5.5 million down on previous year end.  This mainly arose from the $2.5 million impairment charge taken on the Pizza Hut New Zealand goodwill.  Property, plant and equipment at $75.9 million was marginally down on prior year end, with a slow down in capital expenditure and some store closures.

Debt levels continue to reduce, with total borrowings at $40.8 million at the half year, compared with the $42.9 million at previous year end and $48.7 million for the previous half year.

Operating cash flows of $10.5 million were lower than the previous half year’s $13.4 million, with the lower levels of profitability and some movements in creditors. 

A slowing in the capital expenditure programme, together with the fact that no franchise fees of any substance were paid in the first half of this year (compared with $1.6 million in the prior year), saw cash outflows from investing activities reduce from $9.8 million in the 2008 half year to $5.0 million in the first half of 2009.

Whilst the underlying result for the first half is slightly below prior year, directors have sufficient confidence in the current operating performance of the business and year end outcomes to declare an interim dividend of 3.0 cents per share (the same as last year). 

The dividend will be paid on Friday 21 November 2008 to all shareholders on the register at 5pm on Friday 7 November 2008.  For overseas shareholders, a supplementary dividend of 0.5294 cents per share will be paid at the same time. 

Directors have elected to continue to suspend the dividend reinvestment plan for the time being.

Despite the weaker retail environment, directors expect that the KFC business will maintain sales growth and hold its margins in the second half.  The transformation programme will be slowed until a better view of the future retail environment becomes clear.  There remains some opportunity for margin improvement through price increases and some further internal efficiencies. There will also be the opportunity to close two or three loss making KFC stores at lease end, further assisting margins.

The Pizza Hut business is expected to struggle in the short term, although no significant deterioration is anticipated on the first half performance. Two more red roof stores are expected to close in the second half.

The Starbucks Coffee business is expected to continue its same store sales growth trend, showing some improvement in margins as it completes the review of its food offering and continues to implement operating efficiencies in waste and labour.  Some further minor store rationalisation will take place for one or two stores at lease end.

G&A costs are expected to remain constant and some fall in interest costs will be seen in the second half, with lower overall borrowing rates and some reduction in debt levels compared with the prior year. 

Directors expect that with no significant down turn in current economic conditions, the company will produce an NPAT (excluding non-trading items) in the vicinity of $9-10 million for the full year.

Key Points

• Total sales for the company were $303.5 million, up $9.9 million on prior year with same store sales up 3.4%.

• Record sales for KFC at $199.1 million (up 7.7% on a same store basis) and Starbucks Coffee ($33.0 million, up 4.0% on a same store basis) were partly offset by lower sales of $71.4 million for Pizza Hut, down 7.0% on a same store basis.

• Group Net Profit after Tax (excluding non trading items) was $11.0 million, up $4.5 million or 69% on prior year, mainly because of the strong result for KFC and the cessation of losses in Pizza Hut Victoria.

• Sale of the Pizza Hut Victoria business was finalised with all residual stores bar one disposed of or closed.  The disposal of the remaining store will be completed by month end.

• The KFC brand transformation continued its roll out with significant sales growth in the 30 transformed or new stores.

• Strong operating cash flows (up $10.5 million on 2006/7) saw debt reduce by $6.1 million on prior year, notwithstanding the continuing significant investment in KFC transformation.

• A final full year fully imputed dividend of 3.5 cents per share has been declared making a full year dividend of 6.5 cents, up 1 cent on prior year.

Group Operating Results

The 2007/8 year has been one of solid improvement over last year driven by a very strong performance by the KFC business.

Net Profit after Tax excluding non trading items was $11.0 million compared to $6.5 million for the prior year.  The improvement was due to New Zealand operations profit up $1.4 million with $3.1 million from cessation of losses in Pizza Hut Victoria.  Reported NPAT (including non-trading items) was $9.0 million, compared with a loss of $3.6 million in the 2006/7 year.

Non-trading charges of $3.4 million mainly comprised $0.8 million in fixed asset write offs under the KFC transformation programme, $0.9 million in Pizza Hut New Zealand store closures (largely red roofs) and a further $1.2 million in Pizza Hut goodwill impairment charges following a review of the carrying value of this investment.  A further $0.5 million (net of tax) was taken up against the Victoria exit provision, representing the continued delays over the year in finally achieving an exit from this business.   

Total sales of $303.5 million were up $9.9 million or 3.4% on prior year sales.  Same store sales for the group were up 3.4%.  Both KFC and Starbucks Coffee demonstrated continuing solid sales growth, up 7.7% and 4.0% respectively on a same store basis, but Pizza Hut New Zealand saw same store sales drop 7.0% for the year.

Store EBITDA for the year was up $5.2 million to $45.1 million. Almost all of this growth was from KFC.

Above store overheads (G&A costs) at $11.0 million were down $0.1 million on prior year and are running at 3.6% of sales compared with 3.8% in 2006/7.

Depreciation charges were up $1.7 million on prior year with most of the increase being as a result of KFC transformation capex.

Year end store numbers at 228 in New Zealand were 9 down on February 2007 following 6 Pizza Hut store closures (mostly as part of the red roof exit strategy).  In addition a net three Starbucks Coffee stores were closed.

As at the date of this announcement all remaining stores in Victoria bar one had been sold or closed and it is expected the final transaction will be completed by month end.

KFC

KFC enjoyed yet another year of sound sales and profit growth driven by the continued transformation campaign. Total sales reached a new record of $199.1 million, up $16.4 million or 9.0% on prior year (7.7% same store).

A further 9 stores were transformed over the year bringing total transformed and store numbers to 30, over 1/3 of the total network.  Store numbers remained constant at 87.

Earnings were also up strongly, with EBITDA improving by $5.4 million (17.3%) to $36.6 million (18.4% of sales).  Continuing excellent operational controls and the benefit of volume leverage from increased sales were the main drivers of this record profit performance. 

Pizza Hut New Zealand

The Pizza Hut New Zealand business continued to face tough trading conditions with slow progress in restoring sales growth and profitability.  Sales of $71.4 million for the year were down 7.0% on a same store basis.

The impact of the drop in sales, together with some cost increases, particularly in labour, saw further margin deterioration with the brand producing an EBITDA result of $4.7 million for the year, $0.4 million down on prior year.  It is of note however, that the bulk of the shortfall versus prior year occurred in the first half with subsequent trading producing a $0.4 million improvement in EBITDA, despite the continuing sales shortfalls.

The new operational and marketing initiatives introduced over the past 12 months now mean that the business is capable of producing a profit even at the current lower sales volumes.

As part of the initiatives to restore profitability, a number of stores closed over the course of the year.  Five red roof restaurants at Northcote, Palmerston North, Papakura, Dunedin and Queenstown were closed as part of a wider exit strategy and one delco at Eastridge in Auckland closed at lease end.  This brought store numbers at year end to 97.

Starbucks Coffee

Sales growth of 5.6% (4.0% same store) saw Starbucks Coffee revenues exceed $33.0 million for the first time.

The sales growth is pleasing, given a reduction in store numbers of three over the year to 44 at year end.  This store rationalisation involved the closure of four stores; two non performing stores at 105 Queen Street and Lynnmall (both in Auckland), the flagship Downtown Auckland store (because of site redevelopment) and the Albany store at lease end.  One new store in Victoria Street, Auckland was opened during the year.

The continuing impact of higher labour costs was largely offset by lower material costs and the leverage effect of higher sales to produce an EBITDA of $3.9 million, up $0.2 million on prior year.

Cash Flow and Balance Sheet

The strong trading result for the KFC operations and the reduction in cash losses from the Victoria Pizza Hut business resulted in operating cash flows improving to $31.3 million, up $10.5 million on prior year.

Investing cash flows of $18.5 million were $11.1 million down on prior year.  The capex levels in 2006/7 were particularly high with transformation spend at its peak, new store builds across all three brands and the purchase of new computer systems.  Expenditure on KFC transformation in the current year was $10.5 million and franchise renewals comprised another $3.3 million.

The improved cash position has meant that borrowing levels have reduced by $6.1 million over the year with closing bank debt of $42.5 million, well within current facility limits of $70 million.

Total assets at $113.0 million were down on the $117.7 million at last year end.

Franchise Renewals

The company renewed the 47 of its KFC franchises over the year and continued to secure 10+10 year franchises on its transformed stores.  Eight Pizza Hut franchises were also renewed.

Board and Management

Russel Creedy was appointed as CEO in September 2007, following the boards’ extensive international search process.  Mr Creedy’s appointment followed six months in an acting role following the resignation of Vicki Salmon.

There were no changes in directorships over the year.

Dividend

With the improving financial performance of the company the board has elected to increase the final dividend to 3.5 cents per share.  This brings the total dividend for the year to 6.5 cents from 5.5 cents last year.

The dividend will be paid on 27 June 2008 to all shareholders on the register as at 13 June 2008.  A supplementary dividend of 0.61765 cents per share will also be paid to overseas shareholders on that date.

With the change in corporate tax rate for the new financial year, 1.65 cents per share of the dividend will be paid as imputed at 33% and the balance at 30%, giving a weighted average imputation credit of 1.60555 cents per share.

The dividend reinvestment plan will remain suspended for this dividend.

Outlook

Whilst this year’s trading results represent a significant improvement over prior year’s performance, directors remain cautiously optimistic as to future outlook.

Investment in the KFC transformation programme will continue and this business is expected to continue to deliver sales growth.

The Pizza Hut New Zealand profit recovery is anticipated to continue although total sales growth is not expected to be positive due to continuing store rationalisation, particularly of the red roof stores.

Starbucks Coffee is forecast to continue steady sales growth and a margin improvement on prior year.

The 2007/8 year has been one of rebuilding for the company.  With the Pizza Hut Victoria exit finally completed, a higher level of management focus will be made on the Pizza Hut NZ business, with improved results.  This, combined with the KFC and Starbucks Coffee sales momentum, is expected to produce a further steady improvement in the 2008/9 profit performance, economic conditions permitting. 

Key Points

• Net Profit after Tax (NPAT) on continuing operations (excluding non trading items) for the half year ended 10 September was $5.4 million.  This is up 12% on the $4.9 million achieved for the prior year comparable period.

• NPAT including non trading items was $4.5 million, up $4.3 million on prior year.  The prior year included a write down of the Pizza Hut Victoria investment.

• Total revenues from continuing operations (New Zealand) for the first half were $164.3 million, up $7.9 million or 5.1% on prior year.

• KFC continued its transformation strategy, delivering another significant improvement in sales and profitability.  Sales increased 10.8% to $106.2 million and EBITDA earnings were $19.2 million, up $3.7 million (24%) on prior year.

• Pizza Hut New Zealand operations saw a flattening off in the rate of sales decline, recording an 8.2% decrease in sales on prior year, EBITDA earnings were $2.4 million, $0.8 million down on the prior year.

• The Pizza Hut Victoria store disposal process continued with seven stores currently remaining of which two are subject to sale and purchase agreements.  It is planned to have completed the exit from Victoria through the sale or closure of the remaining five stores by the end of the financial year.  While every attempt has been made to provide for the final exit costs a further write off from these remaining stores may be required at year end.

• Directors have approved an interim dividend of 3.0 cents per share, fully imputed, payable on 23 November, 2007.  This is a 0.5 cent increase on the 2.5 cent dividend paid in the 2006/7 year, and recognises the improvement in trading conditions and cash flow.

Group Operating Results

Restaurant Brands New Zealand Limited has produced an un-audited Net Profit after Tax for the half year ended 10 September 2007 of $4.5 million, up $4.3 million on the equivalent period last year.  $3.7 million of the improvement however, arose from last year’s losses in the Pizza Hut Victoria operation, which is now close to being exited.

New Zealand (continuing) operations produced a Net Profit after Tax of $4.5 million for the half year, up $0.6 million or 16% on prior year.  Excluding non trading items, the New Zealand result was an NPAT of $5.4 million, up 12% on prior year.

The bulk of the profit improvement came from a continued strong performance by the KFC business, which generated close to record earnings with an EBITDA of $19.2 million, $3.7 million up on prior year.  This was partially offset by a continued sub optimal performance by Pizza Hut in New Zealand which was $0.8 million below prior year.  Increases in depreciation charges and interest costs arising from the transformation spend also partially offset the improved KFC earnings.

Total revenues from continuing operations totalled $164.3 million up 5.1% or $7.9 million on the 2006/7 year.

New Zealand Operations

KFC

The KFC brand continued to produce pleasing results, based on the continued roll out of store transformations, strong operational and customer satisfaction performance and a full promotional calendar including such successful promotional activity as Hot & Spicy Boneless Chicken, Mashies and Wicked Wings.

Total revenues for the half were $106.2 million, up 10.8% on prior year.  This sales growth (9.9% on a same store basis) was despite the impact of quite significant store closures over the period as part of the store rebuild process and sets a new record for the brand.

The profit flow through was equally strong with KFC delivering an EBITDA of $19.2 million for the half year, an increase of 24.0%, despite continuing cost increases in labour, freight and some raw materials and the loss of profitability on closed stores during the transformation process.  EBITDA margin was 18.1% for the half versus 16.2% for the prior year comparative.

Four stores were transformed during the first half, bringing the total transformed stores to 24 (including three completely new stores) since the project began in December 2004.  The following transformed stores will be re-opened before Christmas: Whangarei, Hastings, Massey and Invercargill South.

KFC store numbers remained constant at 87.

Pizza Hut New Zealand

With changes to management, marketing and pricing activity, improved in-store operations and an increased focus on wastage and shrinkage, the Pizza Hut New Zealand business is starting to make some headway on a turnaround strategy. The market continues to be highly competitive, but the rate of profit decline has slowed.

Total sales for the half at $40.5 million were 8.2% down on prior year, but 5.7% down on a same store basis.  The rate of same store sales decline has reduced as follows:

Q2 07  (16.5)%

Q3 07  (10.3)%

Q4 07  (7.5)%

Q1 08  (8.0)%

Q2 08  (4.0)%

EBITDA was $2.4 million, a 24.2% decrease on the prior year.  Cost increases in labour and raw materials were not immediately recoverable in the very competitive marketplace and de-leverage in fixed cost recoveries continued with the lower sales volumes.  EBITDA margin was 5.9% for the half compared to 7.1% in the prior year.

The changes in management and an increased focus on in-store controls over the past 3-4 months have produced an improving profit trend during the half year.  EBITDA margin for the second quarter at 9.5% of sales was ahead of the first quarter (1.2%) and better than the first half of last year (7.1%).

Store numbers reduced by three over the half year with the progressive closure of another three non performing red roof stores at Northcote, Papakura and Palmerston North.  Two additional red roof restaurants and one delco closure are anticipated by the end of the financial year bringing store numbers down from the current 100 to 97. 

Starbucks Coffee

The Starbucks Coffee business continued to produce a steady performance.  Sales for the first six months of the year were up 7.2% to $17.4 million with same store sales increasing 2.5%.

Total EBITDA for the brand was $2.1 million, up 20.3% on the prior year’s $1.8 million.  Margin increased from 10.8% of sales to 12.1% on the back of higher revenues and an improved exchange rate.

Store numbers reduced by one to 46 over the half with the closure of a non performing store at 105 Queen Street, Auckland pending relocation later this year to a higher profile site.

Pizza Hut Victoria

The focus for the Pizza Hut Victoria business, which was classified as a discontinued operation last year, continues to be the sale or closure of the remaining stores.

At half year, there were eleven stores remaining of the original fifty.  A further three were sold and one closed subsequent to half year balance date.  Another two are expected to be settled within the next two months.  This leaves five stores yet to be resolved; although every possible avenue is being explored for sale or closure to achieve a full exit by the end of the financial year.

The deficit from discontinued operations for Pizza Hut Victoria continues to be taken up to a closure provision made at the end of the last financial year.  While every attempt has been made to quantify and provide for the full exit costs, the complicated nature of multiple lease assignments, the franchisor purchaser approvals and transfer costs mean that the final exit costs are still not known.  The final wash up on completion may still result in a further write-off and a review of the provision will be undertaken prior to year end.

Cash Flow and Balance Sheet

Operating cash flows improved from $8.9 million to $13.4 million for the half, largely due to the substantial increase in KFC earnings and the lower levels of cash loss in the Victoria business.  Investing cash flows decreased from $14.7 million to $9.8 million for the half year with KFC transformation spend running at lower levels and a spreading of franchise renewal fees in the current year.

Total assets at $117.9 million were down $1.9 million on the prior period with the Victoria sell down.  Fixed assets were up $2.8 million with the KFC transformation spend and intangibles were up $1.4 million with payment of franchise fee renewals.  Commensurate with the investment in the KFC business, bank term debt has risen to $48.7 million, compared with $44.1 million in September 2006.  It is however slightly reduced from the $49.2 million in February 2007.

Dividend

With an improving trading and cash flow position the directors have resolved to pay an interim dividend of 3.0 cents per share, fully imputed, compared with 2.5 cents for the last interim dividend.  The dividend will be paid on Friday, 23 November to all shareholders on the register at 5.00 pm on Friday, 9 November.  For overseas shareholders, a supplementary dividend of 0.5294 cents per share will be paid at the same time.

Directors have elected to continue to suspend the dividend reinvestment plan for the time being.

Directors and Management

Following an extensive search process, the appointment of Russel Creedy as CEO was made on 14 September 2007.  Russel who had been in an acting CEO role since March 2007 originally joined Restaurant Brands in 2001 as Supply Chain Director. 

During the half year, there were also changes in the senior management of the company with the appointment of Rod de Vries as General Manager of Pizza Hut.  Rod’s considerable experience in the turnaround of KFC is now being applied to the Pizza Hut business in New Zealand.

Outlook

It is anticipated that the KFC business will continue its momentum in the back half of the year with continued strong sales and profit growth.  A further five KFC stores will be transformed in the second half, bringing total transformations to 29.

While the pizza market continues to be very competitive, Pizza Hut is expected to deliver an improved profit performance in the second half compared to the second half of the 2006/7 year.

Starbucks Coffee is also expected to deliver modest sales growth and maintenance of current margins.

The Pizza Hut Victoria business is still planned to be exited by the end of the financial year with all stores closed or sold and the final quantification of any residual exit costs taken up at year end.

Directors remain confident the company will produce a NPAT (excluding non trading items) in the vicinity of $9 - $10 million for the full year.

Restaurant Brands New Zealand Limited has appointed Russel Creedy as its new chief executive.  He has been acting CEO since the departure of Vicki Salmon in February.

Chairman Ted van Arkel announced today following an extensive global search process that Mr Creedy has been appointed CEO of Restaurant Brands.  Mr Creedy was selected ahead of a number of highly qualified candidates.

“This appointment is very important for the group.  We have been through a thorough process starting from a re-evaluation of group priorities and culminating in a choice of the style of leadership and experience we need to achieve a substantial improvement in performance,” he said.

”During the past six months the group has undergone a full review of its operations and structure –– a process Russel has been intimately involved with –– and we expect this to be reflected in better trading results over the short to medium term.

“Russel’s leadership as acting chief executive over the past six months demonstrated to us he was the right person to lead Restaurant Brands through its next phase of performance improvement and expected earnings growth.  His proven ability to work with stakeholders, including key suppliers and our franchisors to secure benefits for the group, negotiate improved supply-chain relationships and reduce costs also counted heavily in his favour.”

South African-born Mr Creedy, 48, joined Restaurant Brands in 2001 as a supply-chain director.  Later, as director of business development and supply chain, he led the group through a major expansion which included the opening of 27 new Pizza Hut, 14 new Starbucks Coffee and four new KFC outlets.

Mr Creedy, who holds a bachelor of science (chemistry) and a master of business administration from the University of Witwatersrand, South Africa, has led Restaurant Brands cost-reduction campaign during his six-and-a-half years with the group.  His achievements included:

•       restructuring the supply chain by setting up a contract warehouse and distribution service for all frozen, chilled and dry goods;

•       negotiating various supply contracts, including a seven-year chicken supply agreement worth $280 million, generating savings for KFC in the first year alone of $7.2 million;

•       managing Pizza Hut from 2003–2005, achieving good results in an intensely competitive market; and

•       the recent restructuring Restaurant Brands’ support centre, resulting in savings of $1.2 million.

Note to editors: Restaurant Brands New Zealand Limited, an NZSX-listed company, operates the Pizza Hut, KFC and Starbucks Coffee brands in New Zealand, generating sales of nearly $300 million a year.

Russel Creedy’s first name carries one ‘l’ only.

Note: The company adopted International Financial Reporting Standards (IFRS) in the current financial year.  All prior year comparisons have been restated under IFRS to enable a clearer comparison.  

Restaurant Brands Chairman, Ted van Arkel, announced today that the company’s Chief Executive, Vicki Salmon, has today resigned as Chief Executive and Executive Director of the company.  Mr van Arkel said:

“Vicki was a founding director at the time of Restaurant Brands listing on the New Zealand Stock Exchange in 1997, and stepped into the CEO role in December 2003.  The Board acknowledges the energy, enthusiasm and commitment to the company, its people and brands which Vicki has shown.  We wish her every success for the future.”

The company will undertake a search process to identify an appropriate replacement, and in the meantime Russel Creedy, Commercial Services Director, will be appointed Acting Chief Executive.

Restaurant Brands today announced that it had reached agreement with its franchisor Yum to accelerate the company’s sale or exit from all of its 50 Pizza Hut Victoria stores.  This is expected to be achieved by the end of the current financial year (February 2007).

The company said it had sale and purchase agreements for 35 stores, 14 of which will be transferred to new owners in the next few days.  In addition the company has agreed with Yum to assist in the company’s exit of 10 stores early.  Expressions of interest from prospective purchasers have been received for the remaining 5 stores, which are also expected to be sold by financial year end.  

The total cost of the full exit from Victoria is expected to be NZ$9.0 million which includes the $2.6 million write-down of assets taken at the half year.  The balance of $6.4 million will be taken up in the second half results and includes the write-off of $4.1 million of residual asset values (as advised to the market at half year) plus the sale and closure costs of stores, fees payable to Yum and provision for outstanding lease liabilities.  The net cash cost is $1.3 million.  As a result of the decision to exit this business, Pizza Hut Victoria was classified as a discontinued operation at the half year.  The full exit will improve Restaurant Brands operating earnings by approximately $3.0 million in the 2007/08 year.

“We are pleased to have reached an agreement with Yum that allows us to exit this business more than a year before our franchise agreements end.  This allows us to concentrate our efforts fully on the transformation of KFC, growth of Starbucks Coffee, and revitalization of Pizza Hut in New Zealand,” said Restaurant Brands Chief Executive Vicki Salmon.

The company also said that a number of parties have approached the Board of Directors and expressed interest in their potential participation in the future of the company.

Restaurant Brands is responding to these approaches and will keep the market updated of any developments as appropriate

Directors Report to Shareholders for the Half Year ended 11 September 2006

Key Points

·     Net Profit After Tax excluding non trading items was $3.1 million for the half year ended 11 September, down 49% on prior year comparable period.

·     NPAT including non trading items was $0.2 million, down from $2.7 million on prior year largely due to a further write down of Pizza Hut Victoria of $2.6 million and other non-trading items of $1.6 million (non trading items are pre-tax).

·     Directors have approved an interim dividend of 2.5 cents per share, fully imputed, payable on 24 November, 2006.  This is a reduction from the prior year, recognising the difficult trading conditions in the Pizza business and significant investment being undertaken in KFC.

·     A new KFC master franchise agreement was signed for a further 10 years on 14 August, 2006.  An early payment of the franchise renewal fee applicable to the renewed stores, of $2.5 million, was made.

·     KFC continues to perform strongly with the underlying improvement in the business and the transformation strategy.  Sales increased 5.6% and EBITDA earnings were $15.5 million, up 6.2% on prior year.

·     As previously announced, Pizza Hut New Zealand operations saw an 11.5% decrease in sales on prior year, which has had a direct impact on profitability.  EBITDA earnings were $3.2 million, a 52.9% decrease on the prior year.

·     Agreements have been reached on the sale of 24 of the Pizza Hut Victoria stores, with settlement of the first fifteen stores expected during November.  Divestment of this business is proving to take longer and be more expensive than previously anticipated. The business has been classified as a discontinued operation.

·     Total revenues from continuing operations (New Zealand) for the first half were $156.4 million, up 0.8% on prior year.

Group Operating Results

Restaurant Brands New Zealand Limited un-audited Net Profit After Tax for the half year ended 11 September 2006 was $0.2 million compared with $2.7 million for the equivalent period last year.  Excluding non trading items, the company produced a NPAT of $3.1 million, down 49% on the prior year, largely as a result of the downturn in the New Zealand Pizza Hut business and the increased losses occurring in Pizza Hut Victoria.  The company had previously advised that NPAT excluding non-trading items would be between $2.5 million and $3.0 million.

The company incurred a number of significant non trading costs totalling $4.2 million including a further write down on the Pizza Hut Victoria investment of $2.6 million.  Other asset write offs from the extensive KFC refurbishment and store closure costs totalled $1.6 million.

To date, 15 Pizza Hut Victoria stores have completed the sale process and are due for transfer to the new franchisees during November.  Sale agreements have also been reached on a further nine stores.  Pizza Hut Victoria has been classified as a discontinued operation in the financial statements.

Total revenues from continuing operations totalled $156.4 million up 0.8% on prior year.

Continuing Operations

KFC

The KFC transformation process continues to perform to plan, building on the previous year’s improvements and delivering solid growth in sales and profitability.

KFC delivered $15.5 million in EBITDA for the half year, an increase of 6.2%, absorbing cost increases, especially in labour and the loss of profitability on closed stores during the transformation process.  EBITDA margin was 16.2% for the half compared to 16.1% in the prior half.

Total revenues for the half were $95.8 million, up 5.6% on prior year.  This is particularly pleasing given a tightening retail environment and the impact of quite significant store closures over the period as part of the store rebuild process.

In total, seven stores were fully transformed during the first half, bringing the total transformed stores to sixteen (including two completely new stores) since the project began in December 2004.  The project continues to progress well.  The following transformed stores will be re-opened before Christmas: Manukau and Lincoln Road, both in Auckland, Shirley in Christchurch, Palmerston North, and a new store in Hamilton.

KFC store numbers finished the half at 86 with the closure of two stores at lease end in Orewa and Mt Roskill in Auckland.

Pizza Hut New Zealand

As previously announced, Pizza Hut New Zealand continued to encounter difficult trading conditions.  A significant increase in the size and aggressiveness of competitive activity, and the tightening economic climate contributed to a significant drop in Pizza Hut sales over prior year.  

Pizza Hut EBITDA was $3.2 million, a 52.9% decrease on the prior year.  Cost increases in labour (as with KFC) and raw materials were not immediately recoverable in a very competitive marketplace and there was considerable de-leverage in fixed cost recoveries with the drop in sales volumes.  EBITDA margin was 7.1% for the half compared to 13.4% in the prior half.

The company has been proactive in negotiations with suppliers to reduce costs which will have an immediate positive effective on the business.

A number of other initiatives are under way to address the trading downturn including an increased focus on costs and improving in-store operations, a targeted marketing programme and a management restructure.

Total sales were $44.1 million, down 11.5% on prior year and 14.1% on a same store basis.

Store numbers reduced by two over the half with the planned closure of three non performing red roof stores at lease end; Royal Oak, Wanganui and Paraparaumu, and the opening of a new delco in Hobson Street, Auckland. 

Starbucks Coffee

The Starbucks Coffee business continued to deliver good sales growth for the half with total sales up 13.3% on the prior half year to $16.3 million.  Same store sales increased 2.5%.

Total EBITDA for the brand was $1.8 million compared with the prior year of $2.2 million.  Margin reduced from 15.1% to 10.8%. The impact of increased labour costs together with higher lease costs and a stronger US dollar exchange rate affecting the cost of imported coffee all resulted in a decrease in earnings on prior year.  

A greater focus on in-store operations is expected to result in improved margins in the second half of the year.

Store numbers rose by one to 45 over the half with the opening of a new store at Sylvia Park, Auckland.

Discontinued Operations

Pizza Hut Victoria

The underlying trading position at Pizza Hut Victoria has declined since the announcement of the exit strategy.  Total store earnings (EBITDA) showed a loss of NZ$1.6 million compared to a loss of NZ$87,000 in the previous year.

In order to minimise the losses while the business is still operating the level of overhead has been reduced with a number of support functions such as payroll, property and accounts being returned to New Zealand.

There are now sale and purchase agreements in place for almost half the Pizza Hut stores in Victoria.  However, the process of training the new franchisees and obtaining approvals from the franchisor, Yum, is complicated and has taken longer than anticipated.  It is expected that settlement will be completed on an initial tranche of 15 stores during November, with the remaining nine stores transferred before year end.

The deficit from discontinued operations includes an impairment of the assets of the Pizza Hut Victoria business of NZ$2.6 million before tax.  This reflects the amount required to write-down carrying values of store assets, for which an offer for purchase has been made and a sale process underway, to fair value (based on amounts offered) net of the expected disposal costs.

Of the remaining stores, one store has been closed and there is interest in a further six stores. 

Discussions are currently in progress with the franchisor, Yum, to assist with a solution of selling or exiting stores, not currently under offer.  Once these have been agreed, a further evaluation of fair values of remaining stores not currently going through a process of sale can be made, and the remaining disposal costs of all stores can be quantified.  This may result in a further impairment of assets held for sale up to a maximum amount of their current carrying value.  As at 11 September 2006, the remaining value of property, plant and equipment held for sale is NZ$4.1 million.  An assessment will be made before year end as to the full extent of any further losses relating to a full exit and this will be recognised in the full year financial statements.

Franchise Renewals

On 14 August 2006 the company announced it had signed a new KFC Master Franchise Agreement with Yum for another ten years.  This was completed ten months ahead of the planned renewal date in May 2007 in order to provide increased certainty for Restaurant Brands.

Under the agreement, 50% of the KFC franchises were renewed immediately for a $2.5 million renewal fee payment.  Yum have agreed to the renewal of the remaining KFC franchises in May 2007 upon the making of a similar payment.

Restaurant Brands also committed to invest $35 million into the KFC store transformation project over a three year period. To date, $16.5 million has been invested in this programme with a further $6 million expected to be expended by the end of the current financial year.

Cash Flow and Balance Sheet

Investing cash flows increased from $9.5 million to $14.7 million for the period largely because of the increased capital spend in KFC transformation and the payment of $2.7 million in additional franchise renewal fees arising from the early renewal of the KFC business.  Operating cash flows decreased by $4.5 million to $8.9 million for the half. 

Total assets at $119.8 million were up $9.5 million on the prior period, due to the KFC transformation expenditure and the franchise fee payment.  Commensurate with the investment in the KFC business, bank term debt has risen to $43.4 million at period end, up $11 million during this year.

Dividend

Reflecting the weaker trading position of the company and the significant investment being undertaken in the KFC business, the company has completed a detailed review of its forecasts and cashflows.  On this basis the directors have resolved to pay an interim dividend of 2.5 cents per share, fully imputed.  The dividend will be paid on Friday 24 November to all shareholders on the register at 5.00 pm on Friday 10 November.  For overseas shareholders a supplementary dividend of 0.44117 cents per share will be paid at the same time.

Directors have elected to continue to suspend the dividend reinvestment plan for the time being.

Directors and Management

It was with regret that the board accepted the resignation of Bill Falconer in July of this year.  Mr Falconer had been chairman of the company for the past nine years.  

Ted van Arkel, joined the board in September 2004 and following the resignation of Mr Falconer was appointed as chairman.  Mr van Arkel brings extensive senior management and board experience in the retail and wholesale sectors and is a professional director of a number of companies.

In June, Sue Suckling joined the board as a non-executive independent director.  Ms Suckling has considerable governance experience in both the public and private sector, particularly in the food and agricultural related sectors.

During the half year there were also changes in the senior management of the company with the promotion of Simon Lipscombe to the position of General Manager Pizza Hut New Zealand.  He has had eighteen years experience in the operation of KFC business and brings a new focus on driving sales through improved in-store operations.  This appointment enabled Russel Creedy to focus on his commercial services role with a particular focus on reducing costs throughout the organisation.

Adoption of IFRS

The half year report is the first report to be completed under International Financial Reporting Standards (IFRS).  Full details of the material changes in accounting policies will be outlined in the published half year interim report and on the company’s website www.restaurantbrands.co.nz.

Outlook

This has been a difficult half year for the company; however there are a number of initiatives underway to ensure an improved performance.  The positive performance of the KFC business has been offset by the significant downturn in Pizza Hut New Zealand sales and the pressure on margins. The length of time taken to complete the exit of Pizza Hut Victoria has meant that the overall performance of the company has been adversely impacted.

For the balance of the year, the KFC business is expected to continue to deliver strong sales and profit growth with all stores open for the Christmas season.  A further four KFC stores will be transformed in the second half, Lincoln Road (Auckland), Manukau (Auckland), Shirley (Christchurch) and Princess Street (Palmerston North) with also a new store opening in Hamilton. 

While there will be some improvement in Pizza Hut New Zealand, the current competitive environment and higher input costs means this will be limited.  Starbucks Coffee will continue to see sales growth with a corresponding improvement in margin as some cost recoveries take effect.

The exit from the Pizza Hut Victoria business will start to be realised as store sales are settled and transferred to other franchisees during the second half.  The company is expecting an enhanced trading performance in 2008 once the Pizza Hut Victoria exit is complete.

Restaurant Brands Renews KFC Franchise Agreements

Restaurant Brands New Zealand Limited is pleased to announce that it has signed a new KFC Master Franchise Agreement with Yum, the franchisor of its KFC and Pizza Hut brands.

The new agreement allows for an early franchise renewal of approximately fifty percent of the KFC store franchises due for renewal in May 2007.  The agreement comes into effect tomorrow, ten months ahead of the official renewal date.  The remaining KFC stores will be renewed next year in May 2007, as will the Pizza Hut store franchises expiring at that time.  

In addition to the new KFC Master Franchise Agreement, Restaurant Brands has also signed an agreement with Yum which provides for a committed investment by Restaurant Brands of NZ$35 million into the KFC store transformation project over a three year period (which includes the approximately NZ$12.5 million spent to date on completing 15 stores under that project).  Restaurant Brands plans to spend a further NZ$8 million on 8 stores by the end of the year.

The agreement provides that if stores are developed under the KFC store transformation project to an agreed standard, Restaurant Brands may be entitled to a new franchise agreement for an initial period of ten years with a further renewal of ten years, allowing for 20 years in total.

Restaurant Brands Chairman, Ted van Arkel, said that he was pleased with the outcome of the discussions with Yum.

“The Restaurant Brands board is delighted to be able to announce the early renewal of the KFC franchise for a further ten years.  The new agreements and early franchise renewal give us increased certainty and the ability to concentrate on the next stage of the KFC store transformation project.”

Current trading conditions for the business continue to be tight, especially in the pizza category which is having a significant impact on both sales and margin.  The exit from Pizza Hut Victoria is continuing, but progress is slow.  The company is reviewing its forecasts for the remainder of the year and will update the market with further information shortly.

Bill Falconer, Chairman of Restaurant Brands, Retires

Bill Falconer, chairman of Restaurant Brands, the New Zealand operator of three famous food brands - KFC, Pizza Hut and Starbucks Coffee - steps down today after nine years at the helm of the publicly listed company.  Mr Falconer will be replaced by existing Restaurant Brands’ director, Mr Ted van Arkel.

Mr Falconer was appointed to the board in May 1997.

Commenting on his retirement Mr Falconer said: “I have thoroughly enjoyed my time with Restaurant Brands and leave the company in good shape. In the early years we concentrated on the Pizza Hut franchise, first through the acquisition of Eagle Boys and then through new store openings, and achieved some significant growth.  The task now is to consolidate that position in a much larger and more competitive market.  In recent years we have been able to demonstrate through the KFC transformation programme that it is still an exciting concept with further growth potential.  Throughout, Starbucks Coffee has just continued to grow and is now part of the New Zealand landscape.  I look forward to watching this progress as an interested shareholder.

Mr. van Arkel, retired as managing director of Progressive Enterprises Ltd at the end of 2004 after the successful acquisition and integration of Woolworths NZ Ltd.  Since his retirement Mr. van Arkel has become a full-time professional director and has been on the board of Restaurant Brands for nearly two years.  During this time he has been particularly involved with the transformation process of KFC, has chaired the remuneration committee and represented Restaurant Brands as independent director during the potential takeover by CVC in 2005.

Commenting on his appointment Mr van Arkel said:  “I am delighted to accept this responsibility and look forward to working with Vicki Salmon and the senior management team along with my fellow board directors.  All of the brands that we represent here in New Zealand are exciting and we see opportunity for growth.”

Mr van Arkel’s appointment is effective today.

Restaurant Brands has today appointed Sue Suckling as a new non-executive independent director.

Ms Suckling (49) has extensive governance experience in both the public and private sector, including the food and agricultural sector. Sue has a Masters in Biotechnology and was awarded an OBE for her contribution to the New Zealand business sector in 1995.

Sue chairs a number of boards including NIWA ltd, Carson Group SI Ltd and Barker Fruit Processors Ltd. Sue was on the Westpac NZ Investments Ltd board from establishment through to de-listing in 2005. Previous directorships have included NZ Dairy Board (as an independent director), chairing Agriquality Ltd, (as an independent chair), Radio New Zealand, Southpower and Farmlands Ltd.

Restaurant Brands Chairman Bill Falconer said “Sue Suckling has over 20 years of commercial and governance experience and her energy and passion for New Zealand business will be a great asset to the Restaurant Brands board.”

Commenting on her appointment Sue Suckling said:  “I am really excited about joining the board of Restaurant Brands. They are a very important player in the New Zealand food industry.  I am looking forward to leveraging my knowledge and skills from my previous work in this sector.”

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).

Key Points

·      Group Net Profit after Tax for the year (excluding non trading items) was $10.5 million, down $0.5 million (4.7%) on the prior year.  Reported profit was $3.4 million after adjustment for non trading items.

·      After careful evaluation of various options the Directors have decided to exit the Pizza Hut Victoria business.

·      The Pizza Hut Victoria business will be sold over the next 12 months to independent franchisees.  This decision has resulted in a pre-tax write-down on this investment of $7.0 million including goodwill of $2.9 million taken in the half year accounts.

·      The sale of the Australian business will allow focus on the New Zealand operations, and future earnings will fully reflect the value of the New Zealand Group once the exit is complete.  The NPAT loss before non trading items for Pizza Hut Victoria for the year was $3.1 million, similar to the prior year.

·      The KFC and Starbucks Coffee businesses recorded profit improvements over the prior year.  The Pizza Hut New Zealand business experienced reduced earnings.  

·      Total store EBITDA was $45.2 million, up 0.1% on the prior year.

·      Total sales for the group were $316.4 million, an increase of 2.1% on the (52 weeks pro-rata) prior year.

·      Total store numbers reached a high of 289 with growth in all three New Zealand brands.

·      The KFC brand transformation project has delivered significant sales growth in the seven stores that have been transformed which are trading in line with expectations.

·      Directors have approved the payment of a fully imputed, final dividend of 5.5 cents per share payable on 16 June 2006.

Group Operating Results

Restaurant Brands’ 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 KFC and Starbucks Coffee operations enjoyed higher levels of both sales and profitability, but Pizza Hut New Zealand business saw a decline in profit for the year. After adjustment for non trading items, the group profit was $3.4 million.

Non-trading charges of $9.2 million were significant, although largely non-cash in nature. $2.1 million of this amount comprised fixed asset write offs from refurbishments and closures of unprofitable stores in the New Zealand businesses; $2.9 million was the write off of the Pizza Hut Victoria goodwill; and $4.1 million the write down of the Pizza Hut Victoria investment following the decision to sell.

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).  KFC and Starbucks Coffee businesses both showed positive same store sales growth of 1.9 % and 2.6% respectively.  The Pizza Hut businesses on both sides of the Tasman saw a decline in same store sales of 2.9% for Pizza Hut New Zealand and 3.8% for Pizza Hut Victoria.

Total store EBITDA was marginally up on prior year at $45.2 million for the year, maintaining the same margin of 14.3%.

General and administrative overhead costs were $13.1 million, 4.1% of total sales compared to 4.0% in the prior year.

Depreciation and interest costs were both up on prior year, reflecting new store development, the transformation of KFC stores and higher interest rates.  Amortisation costs were lower following the write off of Pizza Hut Victoria goodwill at the half year.

The focus on store development continued with store numbers increasing by a net 11, to a high of 289, coming from Pizza Hut New Zealand (6 stores), Starbucks Coffee (6 stores) and KFC (2 stores).

KFC

KFC sales were up 1.1% over prior year (up 1.9% on a same store basis) to $171.8 million.

Good operating disciplines, an improved marketing calendar and the increasing impact of the brand transformation project all helped deliver this performance.

KFC earnings also improved strongly.  EBITDA for the year was $29.4 million, up $1.6 million or 5.9% on prior year.  EBITDA margin rose from 16.1% of sales to 17.1% for the year reflecting better operating efficiencies from sales growth.

The success of the major brand refurbishment trial in the Hamilton area enabled KFC to undertake a rollout of this programme to another 6 stores with commensurate improvements in store sales and profit performance.  Subject to continuing positive results, management is planning a full rollout of the programme over most KFC stores over the next 2-3 years.

As part of the transformation programme, KFC has also recommenced new store builds with two new stores being opened in regional centres at Kaikohe and Taihape during the year.  These new openings brought store numbers 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%.

The impact of input price increases and competitive pressures meant profitability fell during the year with EBITDA moving from $13.6 million to $12.2 million, a reduction in margin from 15.6% of sales to 13.6% over the year.

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 14.4% increase in sales on a comparative weekly basis to a high of $27.9 million for the year.

Same store sales growth of 2.6% was also achieved.

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, although down slightly in margin terms from 14.9% of sales to 14.2%.

Store development continued with six new stores opened over the year, bringing the total stores to 44.  One store in central Auckland was closed and the lease re-assigned.

Pizza Hut Victoria, Australia

The Pizza Hut business in Victoria Australia whilst continuing to improve its operational performance 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.  

The NPAT loss before non trading items for Pizza Hut Victoria was $3.1 million, similar to last year.

Sales for this division fell 6.5% to A$25.5 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.

Following an in-depth review of all options for the business and Restaurant Brands in total, the decision has been made to exit the Pizza Hut Victoria investment over the next 12 months by selling it to independent franchisees.

There has been considerable interest in some of the initial stores put up for sale.

The original intention in 2002 was to leverage the experience gained from the company’s success in the New Zealand Pizza market.  Despite investment into the existing store base in Victoria the business has been unable to justify the expansion of new stores required for critical mass in this market.  This is due to an intensely competitive market place with Pizza Hut competing with low cost independent pizza operators and more recently a rapid expansion of other branded pizza outlets.  A relatively flat marketing calendar also contributed to the lack of sales traction.

The decision to exit has generated an immediate writedown in the carrying value of the investment assets of $4.1 million as a charge against non trading expenses, in addition to the write off of goodwill of $2.9 million taken up in the interim accounts.

The decision to sell the Pizza Hut Victoria business will allow the company to remove the trading losses associated with Pizza Hut Victoria and focus on the New Zealand operations where it can generate superior returns.  This is the best course of action in the interests of the overall business and will result in a positive impact on earnings once the exit is complete.

Cash Flow and Balance Sheet

Operating cash flows for the year were $26.0 million, up $2.6 million on prior year.  Investing cash flows increased to $20.5 million as a result of continuing accelerated store growth and investment in the KFC refurbishment programme.

Balance sheet levels remained similar to prior year with total assets of $105.5 million.  Borrowings at $33.1 million were $5.7 million higher than prior year.

Fixed assets were up $4.4 million on prior year with increased new store openings and the refurbishment spend (in KFC), partly offset by the writedown of the Pizza Hut Victoria investment.  Intangible assets reduced by $5.3 million to $25.4 million reflecting the write off of the Pizza Hut Victoria goodwill.

Shareholders equity reduced by $5.9 million to $45.1 million at year-end as a result of the significant non trading charges taken to account.

Gearing ratios of 40% (2005: 34%) although up on prior year remained at acceptable levels as did interest cover at 7.4 times (excluding non trading items) (2005: 9.5 times).

Board Members

With the resignation of Mr Trevor Hall in March the board will be looking to fill the vacancy as soon as possible.  Trevor’s contribution to the board has been appreciated.

Dividend

Whilst the reported profit is significantly below prior year, as a result of significant non-cash non-trading items, directors are satisfied with the underlying trading results for the year and the continuing strength of operating cash flows.  They have approved the payment of a final dividend of 5.5 cents per ordinary share, making a total dividend for the year of 10.0 cents per share.  This represents 74% of NPAT before non trading items and goodwill amortization, and maintains the annual dividend level paid over the past six years.

The dividend will be fully imputed and paid on 16 June 2006 to all shareholders on the register at 5.00pm on 2 June.  For overseas shareholders, a supplementary dividend of 0.97058 cents per ordinary share will also be payable on that date.

Directors have determined that the dividend reinvestment plan, suspended at the time of the interim dividend, will also not apply for this dividend.

Outlook

With a softer economic environment, the company is expecting tighter trading conditions in the coming year.

On 24^th March Restaurant Brands reached a widely publicised resolution with the union representing its employees on new wage rates for its partners paid on an hourly basis.  Together with the increase in the minimum wage this will have some impact on margins in the coming year, but these are expected to be largely recovered in price increases.

Solid improvements in the KFC business and the rollout of its transformation programme are expected to continue to drive both sales and store level EBITDA, but will result in higher depreciation and interest costs.  The New Zealand Pizza Hut business will build on its market leadership position which may have an impact on margins.  The Starbucks Coffee business will continue to grow and consolidate its market position.  

Once the exit of the Pizza Hut Victoria business is complete future earnings will fully reflect the value of the New Zealand group.

In summary the overall trading results for the coming year are expected to be similar to those achieved in the current year, but the company will have further built for future earnings growth with continuation of the KFC transformation project, and the consolidation of Pizza Hut’s market leadership in New Zealand.

Restaurant Brands today announced a pay increase for all store hourly paid staff   across it business including KFC, Pizza Hut and Starbucks. The pay rise will be effective for the first two years from the 27^th of March and employees will receive the increase in their next pay packet.  This increase is part of a newly negotiated Collective Agreement.

The major changes in the contract cover: 

• A commitment to gradually remove youth rates with a new rate of 90% of the adult minimum rates for all partners under 18 years of age

• Payment of the full adult rate to shift supervisors under 18 years.

• Minimum rate increases decided by the government will be applied for Pizza Hut and KFC partners as a percentage increase to all adult rates and allowances this year and to all partner rates next year – this means a minimum 7.9% increase for adult partners and a significant increase for partners who are currently 17 years of age (e.g an 14% increase for a 16 year old working for KFC)..

• Starbucks partner rates will move by 75 cents per hour this year and by the same % increase as the adult minimum in 2007.

Commenting on the deal, Vicki Salmon, CEO of Restaurant Brands said:

“We are pleased that we have reached this settlement with Unite. We have been in in-depth negotiations with the Union since March 2005 seeking an outcome that had the best interests of employees at heart, but with the commercial nature of our business in mind.   

Restaurant Brands is well-recognised throughout the hospitality industry for rewarding our staff, offering well-respected staff training programmes and flexible working hours and this settlement will help us to attract and retain quality partners.”