Pizza slices into RBD interim profit

By Phil Boeyen, ShareChat Business News Editor

Tuesday 24th July 2001

Restaurant Brands has turned in a lower first half profit due to the costs of expanding its Pizza Hut franchise and is also picking its full-year profit will be less than in 2000.

For the six months ended June net profit after tax was $6 million, down 19% on last year's interim figure of $7.4 million.

Costs associated with the purchase and conversion of the Eagle Boys chain include interest, depreciation and goodwill amortisation.

Restaurant Brands CEO, Jim Collier, says the Pizza Hut expansion is proceeding to expectations, with earnings before interest, tax, depreciation and amortisation up 73% over last year at $4 million.

"This is the first full half-year since the completion of the expansion of Pizza Hut. The company incurred the full costs of the Eagle Boys acquisition while sales and margins of the transformed Pizza Hut business were still rising.

"Pizza Hut sales and margins both rose steadily through the half and continue to improve in line with expectations."

Restaurant Brands now has 82 Pizza Hut sales outlets which it says are delivering margins of 11.3% - 4.4 points ahead of the second-half last year.

Total group sales for the first six months this year stood $135.6 million, 12.6% up on the first half of 2000, with Ebitda up 12.8% to $24.3 million.

Earnings' margins at KFC were maintained at 21%, while Starbucks' margins grew from 6.9% last year to 10.5%.

General and administrative costs rose $1.4 million over last year, which the company says is due to a range of factors including higher costs associated with absorbing the Eagle Boys business.

Operating cash flows rose 10.5% to $14.2 million while total borrowings at the end of the period were $74.7 million, down from $79.2 million at the end of the 2000 year.

"The company remains comfortable with its interest cover ratio of 3.9 times," says Mr Collier.

RBD has maintained its interim dividend at 4.5 cents per share in expectation of an improved second half result.

"The transformation of Pizza Hut will be consolidated in the second half of the year with margins expected to continue to rise and sales expected to be ahead of the second half of 2000 on a total and same store basis," says Mr Collier.

"As market leader in home delivery and takeaway pizza, Pizza Hut will focus on expanding the category and will launch innovations which are expected to grow category usage."

The company says KFC margins are expected to be maintained at or near current levels while Starbucks' margins in existing stores will grow, although total margins will be held back by the further 8-10 new stores expected to open in the second half.

Mr Collier says total Ebitda, operating cash flow and net profit after tax for the second half of 2001 are expected to be ahead of the second half of 2000, but full year net profit after tax is expected to be below the 2000 year, excluding abnormals.

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