Restaurant Brands lifts FY profit 37%; eyes future expansion

Tuesday 17th April 2018

Restaurant Brands New Zealand increased annual profit 37 percent after the fast-food operator lifted earnings in its local market and benefited from its new businesses in Australia and Hawaii. It's now eyeing expansion to the US mainland.

The Auckland-based company said net profit rose to $35.5 million, or 28.83 cents per share, in the 52 weeks ended Feb. 26, from $26 million, or 24.08 cents, a year earlier. Sales jumped 49 percent to $740.8 million.

Full-year profit excluding non-trading items lifted 32 percent to $40.4 million, in line with the company's forecast for about $40 million. The company said today that profit on that measure would lift at least 10 percent next year. Its shares slipped 0.7 percent to $7.09, having gained 33 percent over the past year.

Restaurant Brands holds the rights to the KFC, Pizza Hut, Starbucks Coffee and Carl's Jr brands in New Zealand and has expanded its business to KFC in Australia and Taco Bell and Pizza Hut in Hawaii, with almost half its sales generated overseas in the latest year.

"The full effects of two major acquisitions is evident in this year’s financial results," Restaurant Brands said. "From a sound, established position in both the Australian and US (Hawaii) markets the company now has significant scope to expand further in both these geographies through acquisition, store refurbishments and organic growth. At the same time, organic growth opportunities within the New Zealand business will be pursued."

Today the company said it's looking at expanding its KFC business in New Zealand and Australia and potentially acquiring KFC operations in Hawaii and the US. It also plans to further develop its Pizza Hut business in New Zealand and Hawaii and may introduce the Taco Bell business to New Zealand and Australia, expand the business in Hawaii and potentially acquire Taco Bell operations in the US.

Chief executive Russel Creedy said Restaurant Brands may expand to the US mainland this financial year if it finds the right opportunity.

"It will be great if we can get going in this financial year," Creedy told BusinessDesk. "The exciting thing about mainland USA is there are a lot of opportunities and it is a very very big market."

Creedy said the west coast in the US "makes sense" for Restaurant Brands, offering several cities with direct flights and the Californian economy alone ranking among the fifth or sixth largest economies in the world. Texas was also a big economy, he noted.

"The US mainland is a bit more like New Zealand KFC was 15-to-20 years ago, extremely under-invested, and needing a lot of love and care," Creedy said. "I think that’s from our point of view a good opportunity to export some good old Kiwi ingenuity innovation, and IP."

Creedy noted that expansion to the mainland US would be a big growth step for Restaurant Brands, likely involving buying businesses with 70-to-100 stores at a time. The company currently has 314 stores, 171 of which are in New Zealand, 82 in Hawaii and 61 in Australia.

He said the company is getting close to its $1 billion sales target and will likely hit it "in the not too distant future". Its expansion plans mean it's likely to hit $1.5 billion of sales within the next three-to-five years, he said.

The expansion has seen the company's bank debt lift to $166.8 million at the end of the financial year, from $46.5 million at the end of the previous year. At balance date, it had bank debt facilities of $253 million in place. In September last year, Restaurant Brands dual-listed on the Australian Securities Exchange to enable it to access additional pools of capital that may be needed to fund future acquisitions.

Creedy said the company was still lightly geared and had flexibility to reduce its capital investments in stores if it chose to use cash elsewhere.

The company will pay a final dividend of 18 cents per share on June 22, taking its annual dividend to 28 cents, up from 23 cents a year earlier.

In the latest year, the company's New Zealand operations lifted earnings before interest, tax, depreciation and amortisation by 6.5 percent to $75.8 million, largely due to the performance of its KFC business which increased ebitda 7.4 percent to $66 million. It wrote down the value of its Carl's Jr chain by $1.2 million and said the business was focused on generating profitable sales rather than driving volume through discounting and promotional activity.

In Australia, ebitda jumped to $22 million from $15 million after the KFC business was acquired in April 2016, part way through the company's 2017 financial year, and more stores were added during the 2018 financial year.

In the Hawaii business that Restaurant Brands acquired in March 2017, the operation contributed $24.1 million in ebitda.

(BusinessDesk)

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