Restaurant Brands profit drops 47% on writedown

Thursday 9th October 2008

Restaurant Brands New Zealand, which holds the local franchise for Pizza Hut, Starbucks and KFC, posted a 47% slump in first-half profit as margins shrank and it wrote down the value of the pizza chain.

Net income fell to NZ$2.36 million in the six months ended September 8, from NZ$4.48 million a year earlier, the company said in a statement. Sales fell 1.1% to NZ$162.5 million.

The company took a NZ$2.5 million impairment charge to the carrying value of goodwill on its Pizza Hut unit, after sales fell 9.4% in the first half and ebitda tumbled 47%. A shrinking market for pizza and aggressive marketing and price cuts by rivals have eroded returns at its outlets.

"Pizza Hut will continue to compete aggressively in this very competitive environment," it said. "There is continuing evidence that Pizza Hut's competitors are also struggling with their profitability" and Restaurant Brands has the added buffer from strong KFC earnings.

The company's shares fell 1.5% to 64 cents and have dropped 28% this year. The results showed its gross margin shrank 6.9% to NZ$27.5 million.

Sales at KFC rose 4% to NZ$110 million, a record for a half-year and making the chicken chain the biggest of the company's operations. Ebitda fell 3.2% to NZ$18.6 million. The company has overhauled its KFC restaurants and expanded its product line.

Sales at Starbucks coffee outlets were little changed at NZ$17.3 million, while ebitda fell 21% to NZ$1.7 million. Same store sales rose 4.4%, which the company called "a pleasing result in the current economic environment."

By Jonathan Underhill

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