Forum Archive Index - September 2003

["winner69 ." <wwinner69@hotmail.com>]

Snoopy asked: Is the value of goodwill on the RBD books BS? (Assuming BS 
means bullshit). Snoopy was looking at the 2000 report. Since then the 
goodwill in RBDs books has increased by $23M from acquiring Eagle Boys, 
$3.6M from Victoria and nearly $2M from Starbucks.

Answer - depends on how you look at it. If one thinks that this goodwill is 
the value of the KFC and PH brands that RBD owns (ie could they sell them) 
than it is bullshit because as you say Snoopy the ultimate 'ownership' of 
the KFC and Pizza Hutt concepts rests with YUM in the USA.

What the goodwill in RBDs books is what RBD have already paid for the right 
to use these concepts in NZ. That cost is being 'amortised'  over the time 
period RBD have the right to use these concepts. So it
is not bullshit - just accounting for the cost of doing business.

At the end of the periods these are being amortised this goodwill on the 
balance sheet will have been reduced to zero - reflecting the economic 
reality that the ownership of these brands rests with Yum!

Snoopy also mentioned the one off franchise payments that must be made to 
YUM when new restaurants are opened. These are called 'franchise costs' in 
RBDs books. These are paid when new stores are opened and amortised over 
time as well.

The royalty fees (nearly $18M in 2003) are based on sales and paid to Yum 
and Starbucks as sales are made. These appear in the RBD P&L as they are 
incurred - unlike the above amortisation costs that will appear in the P&L 
in future years.

Snoopy - maybe you are saying in a round about way that the real winners 
here are Yum! and Starbucks. They get cash up front for the master franchise 
(the right to use the KFC/Pizza Hut/starbucks systems) and for each new 
store and then collect not an insignificant amount on each dollar that goes 
through the till.

RBDs short term value driver is what they can make out of selling these 
products. Long term are they building up anything of value that can be of 
benefit of shareholders? Interesting question.

Sounds like an investment in Yum and Starbucks is a better bet.

Probably haven't asked your question but you do raise some interesting 
points.

_________________________________________________________________
Protect your inbox from harmful viruses with new ninemsn Premium. Click here 
  http://ninemsn.com.au/premium/landing.asp


----------------------------------------------------------------------------
To remove yourself from this list, please use the form at
http://www.sharechat.co.nz/chat/forum/