RBD - Restaurant Brands

[dreamcatcher]

Friend better check that it wasn't 2,851 shares that purchased off him in the deal after he had tendered 3500. That would be 81.45% of shares tendered accepted. About the same ratio as my offering/acceptance.

He's nearly eighty but I suspect you are correct and he jumped the gun and not understanding details.

[blackcap]

He's nearly eighty but I suspect you are correct and he jumped the gun and not understanding details.

Haha sounds like my dad. (He is not 80) but would jump up and down having expected the full amount to be taken and not realising that all is good.

On another note, I see the SP has taken a dive and is now well below the $9.45 received for shares. Some may be tempted to buy back in, I myself may just wait a bit longer and see where it is headed.

[artemis]

Wonder what happens to the divvy not paid because of the takeover proposal. Paid on the remaining shares?

[Rep]

Wonder what happens to the divvy not paid because of the takeover proposal. Paid on the remaining shares?

No dividend is no dividend.
Unless Global Valar wants to declare a divvy to all shareholders incl itself then no you get no dividend.

[glennj]

Post Global Valar gaining 75% of the shares there have been steady volumes of shares changing hands.
Last look they were trading at $9.23 and I did note a few days back at one stage a parcel of 74k went through at $9.30 (not sure if all the volume was at that price?)
This price strength is well ahead of what a couple of punters were picking on here. Perhaps it is unjustified?
I picked up a few shares at $8.40 and could have had more at a better price if I'd been more on to it.
It will be instructive to see how Global Valar behave toward minority shareholders. That and company performance will decide
if I keep or sell the shares in RBD that I have.

[winner69]

Russel said shares would be 10 bucks one day

Russel a good guy

[Balance]

https://www.nzx.com/announcements/333406

EPS going backwards tells the story.

Must be many who are very happy that the partial takeover happened when it did!

[winner69]

https://www.nzx.com/announcements/333406

EPS going backwards tells the story.

Must be many who are very happy that the partial takeover happened when it did!

Without any new growth not an outstanding report is it

[Snoopy]

I have used the net profit after tax, excluding non-trading items for the purpose of this comparison. Non trading items include those associated with store closures and sales transformation costs and insurance payments. These are omitted because they obscure how the business is performing on the ground.

Net Profit/No.of Shares

2014: $18.863m /97.871m = 19.3cps
2015: $22.523m /97.871m = 23.0cps
2016: $24.207m /102.871m = 23.5cps
2017: $30.567m /122.843m = 24.9cps
2018: $40.361m /123.629m = 32.7cps



https://www.nzx.com/announcements/333406

EPS going backwards tells the story.

Must be many who are very happy that the partial takeover happened when it did!

If you use the net profit after tax 'excluding non-trading items', then the five year increasing earnings per share trend is very much intact.

Net Profit/No.of Shares

FY2015: $22.523m /97.871m = 23.0cps
FY2016: $24.207m /102.871m = 23.5cps
FY2017: $30.567m /122.843m = 24.9cps
FY2018: $40.361m /123.629m = 32.7cps
FY2019: $42.2m /124.750m = 33.8cps

However based on Monday's closing price of $9.10, the shares are trading on a PE ratio of :

$9.10 / 0.338 = 26.9

A good company, but that PE is 'getting up there'. Confirmation received that the final dividend for the year will never be paid. As a foundation shareholder holder who still retains around 20% of my shares post takeover I am happy with the result. I am disappointed there will be no final dividend, but not surprised. I won't be topping up my shareholding at such lofty multiples when future capital raisings have been talked about though. But am happy to stick with the shares I have left.

SNOOPY

[Snoopy]

Without any new growth not an outstanding report is it


One piece of 'dead wood' (Starbucks) has been lopped off. Cost savings will flow through to NPAT growth. Maybe 'Carls Junior' will be next? Carls might have to stay on the books until the initial franchise agreements start to run out. But it looks like no more management time will be wasted on the roll out of this brand given the now global outlook for Restaurant Brands.

Parent franchise holder 'YUM Brands' are determined to sell off as many of their in house company owned restaurants as possible by the end of 2019. Our Russel is a bit of a 'poster boy' at YUM. I am picking the talked about acquisition of certain west coast of the United States restaurant assets will go ahead. So there is where the 'next step of growth' is going to come from. But as to whether that will be 'eps growth' is another question entirely!

SNOOPY

[Snoopy]

This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective I am now including 'other revenue' as part of the representative ongoing revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be ongoing

2014: $18.863m / $330.399m = 5.7%
2015: $22.523m / $372.803m = 6.0%
2016: $24.207m / $404.095m = 6.0%
2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%

Conclusion: Fail Test



Reprising the 'Achillies heal' from the Restaurant Brands result from last year: net profit margin.

This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective I am now including 'other revenue' as part of the representative on-going revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be on-going

2015: $22.523m / $372.803m = 6.0%
2016: $24.207m / $404.095m = 6.0%
2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%
2019: $42.2m / $794.0m = 5.3%

The profit margin hasn't got any worse, which is a positive. But it hasn't got any better either. Our Russel has given an object lesson in how to reduce profit margins.

Conclusion: Fail Test

SNOOPY

PS Not tempted to top up at today's close of $8.65 either!

[blackcap]

Thanks for all the free analysis provided here Snoopy. I do appreciate it and it has helped me not purchase new RBD shares with my $9.45 money and will actually be looking to deploy it elsewhere unless I can get RBD for under $7.50 now. (yes I have changed my parameters). I cannot see them going anywhere with a PE of 26. Just too high.

Went to RBD (KFC) store in Dannevirke of all places a few weeks ago and the Mrs who only goes once every 10 years thought she would be clever and order the "Veggie Burger". To her chagrin and my mirth the veggie turned out to be a hash brown. I mean really KFC. That is just terrible. Anyway suffice to say I had a 3 piece quarter pack and was happy with my purchase.

[winner69]

Russel said shares would be 10 bucks one day

Russel a good guy

Looks like Russel will need to keep dreaming

Axing the dividend won’t help ...but most who got the 945 might forgive them this time round.

In the dark old days when despair reigned the divie was about the only thing that supported the share price ..but they were good divies.

RBD might do a Telecom / Spark - when they slashed the dividend the share price started slip sliding away never to reach the highs again.

Snoopy me old mate let’s reminisce with this bit from Gaynor in the NZ Herald in 2004



On August 15, 2000, the same day as the bid for the remaining 20 per cent of AAPT was announced, chairman Roderick Deane told the market that the telco was changing its payout ratio to 50 per cent because of its growth outlook.

Immediately before the announcement, Telecom's share price was $7.55. It plunged to $4.81 by the year-end and the dividend was cut to 20c a share where it has remained until the 2.5 cent increase in the March quarter (the 12-month dividend is now 22.5c).

[Balance]

Axing the dividend won’t help



I think it is very clear from the Takeover document that priority will be given by the new owners to 'growth', rather than using cashflow to pay dividends.

And given the amount of wealth they already have, last thing on their mind will be dividends! It is all going to be about growth.

So over time, it is inevitable that those seeking dividends will sell out.

Question - will NZ market ever embrace a 'growth' stock with less than double digit growth rate?

[Snoopy]

Looks like Russel will need to keep dreaming

Axing the dividend won’t help ...but most who got the 945 might forgive them this time round.


The $10 share price is an aspirational hurdle only now. How many here remember when Nigel Morrison took over as CEO of Sky City and announced that his target was to increase the SKC share price to $10? $10 sure sounds good though.

That $10 share price target for RBD shares was linked to the granting of performance options to Russel and Grant Ellis. But with Global Valar on the scene, they got given the free shares anyway. I expect we shareholders will be asked to support a new senior management share package in due course, which may or may not include that $10 target.



In the dark old days when despair reigned the divie was about the only thing that supported the share price ..but they were good divies.

RBD might do a Telecom / Spark - when they slashed the dividend the share price started slip sliding away never to reach the highs again.

Snoopy me old mate let’s reminisce with this bit from Gaynor in the NZ Herald in 2004



On August 15, 2000, the same day as the bid for the remaining 20 per cent of AAPT was announced, chairman Roderick Deane told the market that the telco was changing its payout ratio to 50 per cent because of its growth outlook.

Immediately before the announcement, Telecom's share price was $7.55. It plunged to $4.81 by the year-end and the dividend was cut to 20c a share where it has remained until the 2.5 cent increase in the March quarter (the 12-month dividend is now 22.5c).

In fairness, I would suggest that there is more technology risk in a Telco than a company that serves up chicken pieces. The AAPT acquisition turned out to be a flop. But whether that could have reasonably been foreseen at the time of the acquisition is another matter.

I think many of us would have experienced a vast change in the way we consume Megabytes over the last fifteen years. Yet the microbites needed to consume chicken require much the same hardware as they did in 2004.

SNOOPY

[winner69]

Snoops ...Russel often mentioned the 10 bucks as the share price increased ....even if it was a bit of inside joke.

[winner69]

Down 8% since profit announcement

I can see this going down to the mid 700s in next month or so

[Snoopy]

Down 8% since profit announcement

I can see this going down to the mid 700s in next month or so


$7.50/33.8 = 22.1

A PE of 22 is still a good growth premium. But if the Taco Bell rebuilds in Hawaii go as well as the KFC rebuilds did in NZ, and more scale can be obtained from the KFC operation in NSW, then who knows? KFC in NZ now trying a new 'motorway stop' branch. The KFC 'dine in experience', free of pesky motorised customers, is going from Auckland to other NZ cities. Lots of incremental opportunities here. The big question is, what will Global Valar bring to the business?

Russel gave an interview on RNZ this morning that hinted at not needing new capital. I thought that was a bit odd considering security of access to new capital was mentioned as a driving force to accept the partial takeover.

RBD still in the NZX50 index I think, but not for much longer? I wonder when the index funds will be forced to sell out? That might be the top up buying opportunity that some on this thread are looking for?

SNOOPY

[Balance]

Down 8% since profit announcement

I can see this going down to the mid 700s in next month or so

PER of 18 to 20 is more appropriate for the company until it proves that it can grow double digit earnings rate again.

So $6.00 to $6.70 should be where it settles.

[sonny n share]

Kentucky Fraud Chicken: How a man got free KFC for a year
https://www.nzherald.co.nz/lifestyle/news/article.cfm?c_id=6&objectid=12230958&ref=clavis

[artemis]

PER of 18 to 20 is more appropriate for the company until it proves that it can grow double digit earnings rate again.

So $6.00 to $6.70 should be where it settles.


Closed at $9.20 today.

[blackcap]

Received my free meal voucher in the mail today. 2 pieces of chicken, a drink, chips and a potato and gravy. Being a practical joker I have color copied the voucher and I am going to attempt to pass this off at my local store. Some of the youngsters that work there are not the smartest tool in the box so it will be interesting to see if it works. On another note, I am surprised by the continued high price of RBD, so it is possible that the Mexicans have a good deal. I am not yet convinced, time will tell.

[Chanchay]

Received my free meal voucher in the mail today. 2 pieces of chicken, a drink, chips and a potato and gravy. Being a practical joker I have color copied the voucher and I am going to attempt to pass this off at my local store. Some of the youngsters that work there are not the smartest tool in the box so it will be interesting to see if it works. On another note, I am surprised by the continued high price of RBD, so it is possible that the Mexicans have a good deal. I am not yet convinced, time will tell.
Careful blackcap. I hear Mexican prisons aren't as nice as ours here in Nueva Zealandia

[Snoopy]

I am surprised by the continued high price of RBD, so it is possible that the Mexicans have a good deal. I am not yet convinced, time will tell.


I am surprised too blackcap, and the incremental return on equity exercise (below) I did in January still stands.





EOFY2016Change]EOFY2018


Normalised Earnings {A}$24.207m]$40.361m


No. of Shares {B}102.871m]123.629m


eps {A}/{B}23.53c+9.12c {D}]32.65c


Owner Equity {C}$75.617m]$210,608m


Owner Equity per share {C}/{B} 74c+96c {E}]$1.70


Return on Incremental Equity / Share {D}/{E}+9.5%]





The return on the new funds from the 2016 cash issue still looks mediocre.

I still retain the balance of my own shares that I did not sell into the offer. I have resisted the temptation to build that shareholding up again. 'Rationally' I suppose I should have sold the balance at $9. But people aren't keen to let go of winning investments. And if people like me aren't willing to sell, those wanting in have to pay a high price. The law of supply and demand at work?



Received my free meal voucher in the mail today. 2 pieces of chicken, a drink, chips and a potato and gravy. Being a practical joker I have color copied the voucher and I am going to attempt to pass this off at my local store. Some of the youngsters that work there are not the smartest tool in the box so it will be interesting to see if it works.


And the point of such a practical joke is what? To get some green recruit into trouble? I hope that if your 'experiment' works, you will quickly come clean and produce the real voucher. That would at least be of use to shareholders!

For what it is worth, when presenting my 'shareholder KFC Card" to my local KFC in the past, they have always been looked at very carefully.

SNOOPY

[Bjauck]

Received my free meal voucher in the mail today. 2 pieces of chicken, a drink, chips and a potato and gravy. Being a practical joker I have color copied the voucher and I am going to attempt to pass this off at my local store. Some of the youngsters that work there are not the smartest tool in the box so it will be interesting to see if it works. On another note, I am surprised by the continued high price of RBD, so it is possible that the Mexicans have a good deal. I am not yet convinced, time will tell. That is pretty denigrating of the staff that work in a business in which you have stake.

So you want to manipulate people you consider to be gullible?

Is your ruse even cost-effective? You would need quite a decent printer for a start and the sort of paper they use for vouchers...plus a journey to your local restaurant. After doing all that you may not be successful with the possibility that a complaint could be levied with the local constabulary - Not to mention the waste of time and lack of meal.

[percy]

Received my free meal voucher in the mail today. 2 pieces of chicken, a drink, chips and a potato and gravy. Being a practical joker I have color copied the voucher and I am going to attempt to pass this off at my local store. Some of the youngsters that work there are not the smartest tool in the box so it will be interesting to see if it works. On another note, I am surprised by the continued high price of RBD, so it is possible that the Mexicans have a good deal. I am not yet convinced, time will tell.

If I send you my address would you mind sending me half a dozen copies.
I am more than happy to pay post and printing costs..................................lol.

[blackcap]

That is pretty denigrating of the staff that work in a business in which you have stake.

So you want to manipulate people you consider to be gullible?

Is your ruse even cost-effective? You would need quite a decent printer for a start and the sort of paper they use for vouchers...plus a journey to your local restaurant. After doing all that you may not be successful with the possibility that a complaint could be levied with the local constabulary - Not to mention the waste of time and lack of meal.

Bjauk, its a practical joke, a ruse, do not get so upset. I am not out to defraud RBD, I am a shareholder afterall. If it works once, I will inform staff and management and have a bit of a laugh about it. I do know on past occasions that staff look at the vouchers all funny and often not sure what to do. There are plenty of KFC vouchers that you need to print from your pc (standard ones) and as such the need for a good printer is non essential. I just color printed on my $50 printer and that should do the trick.

Percy, if it works, I will send you a bunch :)

Chanchay, I take on board the Mexican jail warning. Thank you!

[Snoopy]

Anyway, I don't want to be too critical of Russel as generally I think he is an outstanding chief executive, even if I don't agree with every decision he makes. I do expect the RBD share price to drop after the offer is complete, although not by as much as some think. But I wouldn't be surprised if in twelve months time the price of those remaining shares is north of $9.45.


Following my March 2019 post, the remaining shares are trading at $9.45 already! I have to admit I am stunned as there has been no real strategic news following on from the closing of the takeover offer at an effective price of $8.89 (my post 2439). Big announcements expected at the upcoming AGM? I am also surprised that RBD is hanging onto its position in the NZX50 now that 75% of the shares are locked up. I am still hanging on to the balance of my shares post the takeover.

Feeling a bit guilty now with my campaign to convince shareholders that the share price would fall substantially post takeover. But I don't retract any of my analysis that lead me to that decision. Maybe it is just a case of the market behaving in mysterious ways over the short term?

SNOOPY

[glennj]

Good recent trading update and 9.52 at close today. Now the share price is above the recent partial takeover price. Used one of the shareholder vouches today. Didn't particularly like the KFC but it was good to see the outlet very busy!

[Jonboyz]

Another article today in stuff about RBD I introducing Taco Bell to NZAU soon. Starting with 2 stores then 60 over the next 5yrs. Interesting that almost all comments have been negative to the idea - no one seems to like taco bell that much, and don't see them competing against existing mexican stores very well.
Wondering whether RBD might be shoving money down a large drain?

[glennj]

Another article today in stuff about RBD I introducing Taco Bell to NZAU soon. Starting with 2 stores then 60 over the next 5yrs. Interesting that almost all comments have been negative to the idea - no one seems to like taco bell that much, and don't see them competing against existing mexican stores very well.
Wondering whether RBD might be shoving money down a large drain?

It remains to be see seen how Taco Bell will work in Australasia. It has been a success in Hawaii and is growing strongly in that market. For Year 2020 the effect of the roll out of Taco Bell in Australasia is not expected to make a material difference to financial performance. RBD have shown with the dropping of the Starbucks franchise and care taken with the Carl Juniors roll out that they will modify plans if that is called for.

[Snoopy]

I have used the net profit after tax, excluding non-trading items for the purpose of this comparison. Non trading items include those associated with store closures and sales transformation costs and insurance payments. These are omitted because they obscure how the business is performing on the ground.

Net Profit/No.of Shares

2014: $18.863m /97.871m = 19.3cps
2015: $22.523m /97.871m = 23.0cps
2016: $24.207m /102.871m = 23.5cps
2017: $30.567m /122.843m = 24.9cps
2018: $40.361m /123.629m = 32.7cps


Conclusion: Pass Test


I have used the net profit after tax, excluding non-trading items for the purpose of this comparison. Non trading items include those associated with store closures and sales transformation costs and insurance payments. These are omitted because they obscure how the business is performing on the ground.

Net Profit/No.of Shares

2015: $22.523m /97.871m = 23.0cps
2016: $24.207m /102.871m = 23.5cps
2017: $30.567m /122.843m = 24.9cps
2018: $40.361m /123.629m = 32.7cps
2019: $42.181m /124.758m = 33.8cps


Conclusion: Pass Test

SNOOPY

[Snoopy]

Net Profit excl. non trading / Shareholder Equity EOFY

2014: $18.863m / $64.656m = 29.2%
2015: $22.523m / $71.210m = 31.6%
2016: $24.207m / $75.617m = 32.3%
2017: $30.567m / $192.059m = 15.9%
2018: $40.361m / $201.608m = 20.0%

Conclusion: Pass Test

PS For comparative trend purposes the annualized latest half year ROE is as follows:

HY2019: ($21.853m x2) / $217.075m = 20.1%


Net Profit excl. non trading / Shareholder Equity EOFY

2015: $22.523m / $71.210m = 31.6%
2016: $24.207m / $75.617m = 32.3%
2017: $30.567m / $192.059m = 15.9%
2018: $40.361m / $201.608m = 20.0%
2019: $42.181m / $224.670m = 18.8%

Conclusion: Pass Test

SNOOPY

[Snoopy]

This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective I am now including 'other revenue' as part of the representative ongoing revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be ongoing

2014: $18.863m / $330.399m = 5.7%
2015: $22.523m / $372.803m = 6.0%
2016: $24.207m / $404.095m = 6.0%
2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%

Conclusion: Fail Test


This is the net profit, excluding non-trading items, divided by the total sales for the year. I am now including 'other revenue' as part of the representative ongoing revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be ongoing

2015: $22.523m / $372.803m = 6.0%
2016: $24.207m / $404.095m = 6.0%
2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%
2019: $42.181m / $824.915m = 5.1%

With this statistic either staying still or going backwards there is only one conclusion I can make.

Conclusion: Fail Test

SNOOPY

[Snoopy]

Having posed the above question, I think rather than speculating on what the answer might be, I should 'do the maths' and find out.

From the Buffettology Workbook, p149

"We take the per share amount of earnings retained by a business for a certain period of time then compare it to any increase in per share earnings that occurred during the same period"

In this instance the 'per share earnings retained' has been supplemented by a whole lot of new capital raised with the October 2016 cash issue. So in my judgement it is best to use the change in shareholders equity from the reporting date before the cash issue (EOFY2016) to the end of FY2018. FY2018 was the first full year of operation that included the Hawaiian and most (42) of the Australian KFC acquisition (18 more KFC stores were acquired over FY2018).



EOFY2016Change]EOFY2018


Normalised Earnings {A}$24.207m]$40.361m


No. of Shares {B}102.871m]123.629m


eps {A}/{B}23.53c+9.12c {D}]32.65c


Owner Equity {C}$75.617m]$210,608m


Owner Equity per share {C}/{B} 74c+96c {E}]$1.70


Return on Incremental Equity / Share {D}/{E}+9.5%]



The above should not be too much of a surprise. If the overseas operations are now roughly the size of the NZ business, the ROE before overseas acquisitions was 30% and the ROE after overseas acquisitions was 20%, then it would take a figure that low to bring the average ROE down to 20%. I would also argue that not all of that new capital has been in use all of the time (the capital raised one quarter of the way through the study period and gradually deployed over it).

I don't know what he generally accepted value of the cost of capital of RBD is these days, But I would guess that 9.5% 'plus a bit' is still above it. I suppose what this means is that real underlying growth for RBD will be much slower going forwards compared to the recent past.


From the Buffettology Workbook, p149

"We take the per share amount of earnings retained by a business for a certain period of time then compare it to any increase in per share earnings that occurred during the same period"

In this instance the 'per share earnings retained' has been supplemented by a whole lot of new capital raised with the October 2016 cash issue. I will use the change in shareholders equity from the reporting date before the cash issue (EOFY2016) to the end of FY2019. The extra year that I have brought into this comparison since my FY2018 perspective includes the Hawaiian acquisition (as before), but also the first full year that included all (61) of the Australian KFC outlets acquired to date.



EOFY2016Change]EOFY2019


Normalised Earnings {A}$24.207m]$42.181m


No. of Shares {B}102.871m]124.758m


eps {A}/{B}23.53c+10.28c {D}]33.81c


Owner Equity {C}$75.617m]$224.670m


Owner Equity per share {C}/{B}74c+$1.06 {E}]$1.80


Return on Incremental Equity / Share {D}/{E}+9.7%]



The above result is disappointing. RBD has suspended dividends to fund their expansion plans, raising an incremental amount of new capital to add to the cash issue capital. I would argue that the new capital raised in the cash issue in October 2016 has now had sufficient time to be deployed. Yet the return on new capital over our comparative period has barely improved from FY2018 perspective comparison.

I don't know what the generally accepted value of the cost of capital of RBD is in 2019. But I would guess that 9.7% not far away from it. There must now be doubt as to whether all the new capital being raised is even earning its cost of capital when deployed. This problem is hidden by the extremely strong cost of capital being earned in the legacy New Zealand business.

SNOOPY

[glennj]

Thanks for the overseas ROE perspective Snoopy. The ROE post acquisitions for RBD is 18% according to one piece of info I've got. What I'll watch with is interest is to see if management can extract better ROE going forward from the largely recently acquired non NZ part of the business.

[Snoopy]

Thanks for the overseas ROE perspective Snoopy. The ROE post acquisitions for RBD is 18% according to one piece of info I've got.


In my post 2533 I calculate ROE for the whole company 'post acquisitions' at 18.8%. Of course that figure will vary depending on what profits you regard as representative and whether you wish to estimate a representative value of shareholder equity that covers the whole year or just take the equity figure at the end of the year.



What I'll watch with is interest is to see if management can extract better ROE going forward from the largely recently acquired non NZ part of the business.


Better than 9.7% you mean? It is not very encouraging to see this ROE figure little changed from what it was the previous year. I would have expected it to get better! I know there have been planning approval delays in Hawaii, that have delayed the refreshing of 'Taco Bell'. So maybe it will come right in the end? But the growth of Taco Bell in Hawaii seems to have been offset against a declining Pizza Hutt business in Hawaii. Furthermore I don't see any 'excuses' coming out of Australia. Couple that with Russel's comment in AR2018 on stores acquired being much less incrementally profitable than new stores built and the outlook looks to be RBD losing sales quality out of their newly invigorated Mexican powered sails.

SNOOPY

[Snoopy]

The directors did come out too and say they were targeting $1b sales (a $1 billion company) was there thing and then later the chair started talking about $1.5b. I asked the directors later that growth and sales is all good, but please keep in mind that as a S/H I am only really interested in EPS. With EPS currently at 29 cents the $8 may look a bit toppy. One of the directors was not so concerned about EPS, he was all about the growth, another I talked to was a lot more circumspect about EPS accretion being important when evaluating any potential acquisition, be it synergy potential or other.

Looking back over blackcaps impressions from the 2018 AGM, the comment in bold stood out. This is what Buffett calls 'the institutional imperative.' In numbers terms, this is what my post 2535 shows up. In word terms it means buying up businesses to increase the headline turnover to build your own ego, rather than very selectively acquiring assets to build profits at increasing margins for shareholders.

Looking back over the 2019 meeting addresses, Russel was very vocal about the reduction in excess packaging lessening the waste to landfill. He forgot to thank his conservationist parents for leaving the second 'l' off the end of his name though. That simple act would have saved thousands of litres of printers ink over the years.

Russel was also keen to welcome Finaccess:

"The significant investment that Finaccess Capital has made in the company and the unequivocal support for our growth strategy provides a firm platform for the next big push and I look forward to working together to deliver on these plans."

What was not mentioned was that the net new capital injected as a result of Finaccess coming onto the RBD register was zero. For every dollar that Finaccess invested into RBD, the bought out shareholders removed exactly the same amount. It was at least good to see that Russel didn't curse existing shareholders that accepted the Finaccess offer for withdrawing their capital from the company!

The actual new capital supplied to RBD was in fact due to the cancellation of the dividend. This is contrary to what was suggested in the takeover documentation of no change in dividend policy and the hints of support for future capital raisings. Don't get me wrong. I actually think that the withholding of dividends to fund growth makes sense. But I do wish Finaccess had been more up front about their plans. Maybe I have spoken too soon and the scramble to buy a beachhead into the United States mainland will see that cash issue materialise?

The NPAT (excluding non-trading items) forecast result for the new financial year is in excess of $45 million. In 'eps' terms this equates to:

$45m / 124.758m = 36cps

At yesterdays close of $9.70, this represents a forecast PE ratio of:

970 / 36 = 27

That seems very high for a company growing earnings of 5 to 7 percent per year and whose IP consists of the detail working over of a restaurants internal layout. I was going to include choosing great restaurant locations. But RBD have admitted to many poor decisions on new restaurant opening sites in the past. Meanwhile 'YUM brands' own the IP to most of the food sold and even dictates the marketing spend.

This FY2019 forecast represents earnings growth of $45m/$42.181m = +6.7%

Let's hope that RBD have a strategy of under promising and over delivering!

SNOOPY

discl: Accepted the takeover offer and don't regret doing so (without the benefit of hindsight). Still holding the remainder of the shares I was left with.

[Snoopy]

I am about concern with the high debt level of RBD and the rising input cost (raw material - food). The fast food market is very competitive and it is hard to pass on those cost..

There has been little interest in the debt position of RBD over recent years The above quote is from 2008! RBD has obviously survived and thrived since then. One advantage of being in the fast food industry is that accounts are normally paid 'on time' and 'in cash'. Furthermore stock turnover is rapid. This enables a fast food business to carry more debt than other retail businesses as cashflow is better. But how much debt is too much debt? Now that RBD has become a 'growth company' and dividends have been suspended, this is a question we shareholders should consider.

My favourite debt measure remains 'MDRT'. Put simply, MDRT is the answer to the question: "If all earnings after tax were poured back into repaying the company's bank debt, how long would that take?" When working out this, we must use a company's declared IFRS profit, not a normalised profit. It takes actual cash to repay a bill!



FY2015FY2016FY2017FY2018FY2019


Bank Term Debt$12.675m$22.550m$46.482m$166.815m$145.853m


less Cash and Cash Equivalents($1.575m)($1.093m)($70.390m)($10.410m)( $15.034m)


equals Net Debt {A}$11.100m$21.457mNM$156.405m$130.819m


Declared NPAT {B}$23.830m$24.070m$25.595m$35.466m$35.741m


MDRT {A}/{B}0.5 yrs0.9 yrs0 years4.4 yrs3.7 yrs



The anomaly in the table was the large amount of cash carried on the balance sheet at EOFY2017. That cash was raised for the Hawaiian settlement that was still pending at balance date. $94 of this cash was raised through the share offer dated 26th October 2016 via a 1: 5.15 cash issue. If we remove that cash from the balance sheet we can get a more representative MDRT figure:

$70.092m / $25.595m = 2.7 yrs

2017 was also the year that RBD announced their change of direction to become a global rather than a solely New Zealand based operator of restaurants. Underlying EPS has risen from 24.9cps to 33.8cps from FY2017 to FY2019 over the two years since. But debt has ballooned as well.

My rule of thumb for the MDRT answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

So no concerns from me with the debt at EOFY2019 levels. Yet given the poor rate of return on RBD's overseas acquisitions so far (my post 2535), the capital position after RBD's next much mooted acquisition may or may not have to be reassessed. The size of any new subsequent acquisition will be the deciding factor.

SNOOPY

[Snoopy]

So no concerns from me with the debt at EOFY2019 levels. Yet given the poor rate of return on RBD's overseas acquisitions so far (my post 2535) the capital position after RBD's next much mooted acquisition may or may not have to be reassessed. The size of any new subsequent acquisition will be the deciding factor.


For a company that has an appetite for borrowing, it is useful to know what borrowing rate they have negotiated. Note 6 of AR2019 shows that loans have been taken out in three jurisdictions: NZ $NZ12.200m, Australia $NZ77.921m and USA $NZ55,732m. The individual interest rates in each jurisdiction are not detailed. Yet based on starting and finishing total balances for the year, and knowing the overall finance bill, we can calculate an indicative figure:

$6.797m / [1/2( $145.853m + $166.815m )] = 4.3%

RBD has taken out several interest rate swaps, the details of which we shareholders can find under Note 6 in AR2019. Generally an interest rate swap is taken out to provide certainty in a payment stream going out into the future. However, taking out an interest rate swap also implies the loan rate is somewhat favourable. If it was not so, then the company might just eschew the derivative and rely on the spot interest rate payable at any time.

Using indicative exchange rates of $NZD1 = $USD0.67 and $NZD1 = $AUD0.95, the total interest rates swaps in NZD terms add up to:

($5.0m+$10m) + ($15m+$20m)/0.95 + ($10m+$10m)/0.67 = $15m + $36.8m + $29.8m = $81.6m

This is well shy of the actual total loan amount of $145.853m. One way to interpret this is that management expect borrowing interest rates to fall going forwards. Most of these hedges were taken out in November 2017, just prior to substantial acquisitions in Australia and the USA. At that time the NZ contract rate of 4%, the Australian contract swap rates of 3.4% and 3.2% and the US contract swap rate of 3.8% obviously looked good.

SNOOPY

[Snoopy]

So no concerns from me with the debt at EOFY2019 levels. Yet given the poor rate of return on RBD's overseas acquisitions so far (my post 2535) the capital position after RBD's next much mooted acquisition may or may not have to be reassessed. The size of any new subsequent acquisition will be the deciding factor.


Re-reading the Finaccess takeover offer the position on future growth has been mapped out, From page 8:

"Global Valar has confirmed to the independent directors that it does not currently intend to promote a change to Restaurant Brands dividend policy in the near term."

- That is the bit that made me think dividends would continue.- But continuing on reading:

"Global Valar has also stated that after completion of the offer the dividend policy will need to continue to be assessed against other capital requirements in the business on an ongoing basis, with Shareholder value from a dividend needing to be considered relative to the potential value creation from reinvesting the funds within the business."

The takeover document then goes on to talk about capital structure

"Global Valar has advised the Independent Directors that it does not intend to significantly lever Restaurant Brands (i.e. increase Restaurant Brands debt)"

and we learn

"Global Valor does not envisage any future equity capital being required from Restaurant Brands shareholders in the near to medium term, although any large-scale initiatives which are unable to be funded from from business cashflow would require an assessment of capital sources at the relevant time."

We then learn about another Global Valar subsidiary 'AmRest', another owner of restaurants:

"Finaccess Capital set a maximum target leverage ratio of 'Net Debt'/ EBITDA of 3.2x."

So what does all this tell us about 'Restaurant Brands' and the capital required for any acquisitions made from here? If we assume that a "Net Debt/EBITA" ratio of 3.2x applies here, we can start by looking at how this ratio stacks up now. I calculate EBITDA by taking EBIT before non-trading items and adding back 'Depreciation and Amortization'.



FY2018FY2019


Bank Term Debt$166.815m$145.853m


less Cash and Cash Equivalents($10.410m)($15.034m)


equals Net Debt {A}$156.405m$130.819m


Declared EBIT $63.182m$65.229m


add Depreciation & Amortisation $29.599m$30.567m


equals EBITDA {B}$92.781m$95.796m


Net Debt/EBITDA {B}1.691.37


:
We are well under that target figure of 3.2 for the Net/Debt EBITDA ratio. In fact from EOFY2019, the net debt can increase to:

$130.819 x (3.2 /1.37) = $305.563m with no more earnings before this self imposed covenant is breached.

If RBD persist with getting that mainland USA beachhead, then my guess is that a even a $US50m -$US100m purchase price for a turnaround business in mainland USA of marginal profitability will not worry the new board. They will be happy with such a post acquisition debt expanded balance sheet.

SNOOPY

[winner69]

Russel always did say RBD would be a 10 buck share

He's a guru that Russel - quite a few didn't believe him


Cool

[Snoopy]

Russel always did say RBD would be a 10 buck share

He's a guru that Russel - quite a few didn't believe him




Even Russel didn't believe it, because he agreed to 'on sell' most of his shares to 'Finaccess' at $9.45. Is Russel doing the right thing retaining the RBD shares he has left? One way is answer this question is to compare RBD with another company developing KFC and Pizza Hutt Restaurants around the Pacific rim, this time in the worlds most populated country: 'The People's Republic of China'. Some of you may have noticed that I have started a 'Yum China' (YUMC thread) on the Overseas Forum. i have pulled much of the YUMC comparative information below from that:




Restaurant BrandsYUM China


Share Price 19-08-2019$10.20$44.11


Normalised eps (last year)33.8c$1.62


Historical PE (last year)3027


Forecast eps (this year)36c (+6.5%)$1.72 (+7.5%)


Forecast PE (this year)2826


Forecast dps (this year)0c48c


Forecast Dividend Yield (this year)0%1.1%


FIF Liability (this year)0c(67c)


ROE (last year)18.8%21.3%


Incremental ROE (since 2016 capital raising)9.7%15%


MDRT (last year)3.7 years0 years


Net Profit Margin (last year)5.1%8.2%


Brand Intellectual Property OwnedNone'COFFii & JOY' (Starbucks challenger) and 'Little Sheep' (Hot Pot meals)



This table shows that RBD compares unfavourably on all measures, bar the FIF regime bill that applies to YUMC for those NZ investors subject to the FIF regime. For RBD: Lower dividend (actually none), higher PE ratio, lower forecast growth, lower returns from reinvested new capital, lower net profit margin and higher debt.

The forecasts for RBD are perhaps a little more uncertain, because it is only in the last couple of years that they have become 'overseas focussed'. It is therefore more uncertain just how successful they will be in the medium term with this new strategy. My 'Buffett Growth Model' is predicting a total return (including capital gain dividends and taxes) for YUMC of just under 7.4% per annum going forwards. RBD can't be evaluated using the 'Buffett Growth Model'. But, given the unfavourable comparative figures, we can reasonably look forward to a total return for RBD of somewhat less that 7.4% per annum going forwards.

Is RBD a good investment today? I have confidence in the direction of the company, and it seems to be executing their overseas expansion strategy in a satisfactory way. Nevertheless I am of the opinion that a forecast PE price of 28 is too high a price to pay. At today's prices I would favour YUMC as the better investment. But better is a 'relative term'. Personally I would be looking for a good dip in the market, before I would be willing to put more capital into either.

SNOOPY

[janner]

Even Russel didn't believe it, because he agreed to 'on sell' most of his shares to 'Finaccess' at $9.45. Is Russel doing the right thing retaining the RBD shares he has left? One way is answer this question is to compare RBD with another company developing KFC and Pizza Hurr Restaurants around the Pacific rim, this time in the worlds most populated country: 'The People's Republic of China'. Some of you may have noticed that I have started a 'Yum China' (YUMC thread) on the Overseas Forum. i have pulled much of the YUMC comparative information from that:



Restaurant BrandsYUM China


Share Price 19-08-2019$10.20$44.11


Normalised eps (last year)33.8c$1.62


Historical PE (last year)3027


Forecast eps (this year)36c$1.72


Forecast PE (this year)2826


Forecast dps (this year)0c48c


Forecast Dividend Yield (this year)0%1.1%



I see .. Said the blind man..

Where is my writing stick ??..

Good post Snoopy.

[artemis]

Looks like the first Taco Bell to open soon in New Lynn. Based on job advert for an assistant manager.

[Snoopy]

KFC in the US are test marketing plant based chicken products, in partnership with one the years hottest floats 'Beyond Meat'.

https://finance.yahoo.com/news/kfc-is-testing-beyond-meat-plantbased-fried-chicken-120016030.html

This is a follow up project to the new meatless meatballs that are now be trialled at 'Subway'.

None of this has hit NZ yet of course. But since these new products are expected to attract a premium price, could this go some way to justifying the relative high value of takeaway restaurant companies not only in NZ, but worldwide?

I can see more potential for value at RBD too. When Russel finally decides to 'hang up his chicken wings' what about going for a plant based replacement? A triffid like being could easily be grown which incorporates the general style and appearance of Russel. It should be a much cheaper process than hiring a new CEO!

SNOOPY

[Blendy]

Breaking News, friends - there's a new ridiculous KFC burger on the horizon - with donuts for buns. https://mashable.com/article/kfc-donut-sandwich/?utm_medium=twitter&utm_source=social&utm_campaign=mash-com-tw-main-link&utm_content=culture

People on Twitter do not care for my "completely wrong" opinion that this would taste terrible :) and it appears that there's a decent market for this if it were to launch here.

[peat]

fried chicken, burgers and tacos - all doing good
not so much the pizza

[winner69]

Jeez Shareprice will be 12 bucks soon

Wasn’t long ago it reached 10 bucks .....amazing eh

[Snoopy]

fried chicken, burgers and tacos - all doing good
not so much the pizza


All comparisons are with the equivalent quarter of the previous year



Restaurant Brands NZYUM China


Overall Sales Increase+3.5%+6.7%


Increase in Store Numbers-6.6%+6.7%


KFC Same Store Sales Increase+6.1%+5%


Pizza Hutt Same Store Sales Increase-4.3%+1%


Percentage of Delivery Sales (Carls)8.9%


Percentage of Delivery Sales (KFC)18%


Percentage of Delivery Sales (Pizza Hutt)25%


Share Price Increase 01-03-2019 to 30-08-2019+16%+9.7%



RBD has done well, with the only two negative figures: the loss of stores over the year largely due to the sale of 'Starbucks' and the stalling Pizza Hutt same store sales. The annual RBD sales increase was only half that of YUMC. Meanwhile the share price appreciation for RBD over the last six months was twice that of YUMC. I don't think this makes sense. Relative to YUMC, RBD was overvalued a month ago and is even more overvalued now. I wonder if more deliveries for NZ customers via the likes of 'Uber Eats', will see that extra step growth that will be needed to justify the RBD share price above $11?

SNOOPY

[percy]

Excellent interim.

[Snoopy]

'Profit' excluding non-trading items was $42.181m over FY2019. The associated earnings per share calculation is as follows::

2019: $42.181m /124.758m = 33.8cps

The information below is derived from Russel's AGM for FY2019 address.



The NPAT (excluding non-trading items) forecast result for the new financial year is in excess of $45 million. In 'eps' terms this equates to:

$45m / 124.758m = 36cps

At yesterdays close of $9.70, this represents a forecast PE ratio of:

970 / 36 = 27

That seems very high for a company growing earnings of 5 to 7 percent per year and whose IP consists of the detail working over of a restaurants internal layout.


In the half year FY2020 update Russell says:

"The Group expects to deliver a NPAT (excluding effect of NZ IFRS 16) for FY20 of at least 10% in excess of FY19"

So we are now talking an NPAT for FY2020 of:

$42.181m x 1.1 = $46.399m

HY 2020 profit already booked (excluding non-trading items and the effect of NZ IFRS 16) was $25m. So the profit in 2HY2020 needed to achieve our profit goal is:

$46.4m - $25.0m = $21.4m

That looks easily achievable, although I do expect the contribution from the start up operations of Taco Bell in Australia and New Zealand to be negative. Pizza Hutt profits in NZ plunging to an EBITDA of just $0.5m for the half, down 66% on the pcp is a worry though.


Excellent interim.

I concur. The historically high PE ratio I noted in a previous post looks a little more justified now that profit growth is forecast at 10%, up from 5-7% this year.

Profits will fall by probably $5.8m (2x the $2.9m half year profit fall) due to IFRS9 requirements though. So declared IFRS compliant profits for this year I expect will be lower:

$46.4m - $5.8m = $40.6m

Nevertheless, 'The market' doesn't seem too worried about this!

eps: $40.6m / 124.758m = 32.5cps

PER for 2020 based on Friday's $11.75 closing share price:

1175 / 32.5 = 36

That will require an eps growth rate of 36% between FY2020 and FY2021 to keep Percy happy! Heady days!

SNOOPY

[Stumpynuts]

Taco Bell opens it's first store in New Lynn Auckland today.
Any predictions for Taco Bell's impact on RBD's SP?

[Snoopy]

Taco Bell opens it's first store in New Lynn Auckland today.
Any predictions for Taco Bell's impact on RBD's SP?

A couple of stores in NZ and Oz are not material to the RBD business. So the real effect will be the growth potential these early stores show as a portent to the potential opening of many more Taco Bell stores.

The nearest equivalent event I can think of was the rolling out of the Carl's Junior brand in NZ a few years ago. I recall customers queued out the doors and reports that is was the most successful launch of the Carls Junior brand in any new market to date. Yet a few years down the track, the roll out of new Carl's Junior stores has stopped, and it remains marginally profitable at EBITDA level. Put back the depreciation and allocate an appropriate percentage of head office expenses and one might argue Carl's Junior is not yet profitable.

I think the start up of Taco Bell in NZ and the reboot in Australia are a sop to master franchise holder YUM Brands, who also franchise KFC worldwide. I am not sure a down market Mexican food chain will gain any real traction outside of the Americas, and predict that Taco Bell will be a loss making distraction for RBD management in Australia and NZ, albeit a necessary one to keep YUM happy. However if by opening Taco Bell in Australasia, it allows RBD to continue on their international KFC expansion plans - where the real money is - then I will put up with it. It has all been well signalled so far, so I say no effect on the RBD share price

SNOOPY

[Balance]

Snoopy’s assessment of Taco Bell for RBD - bang on nail on
the head.

As for the long queues at the openings of all these new outlets - they all employ the same techniques to create the illusion of intense interest & demand. Yawn.

[Jonboyz]

Tried out the new Taco Bell store yesterday. I shouldn’t have gone with such high expectations. The store itself looks nice (although the ‘bouncers’ limiting the number of patrons through felt a bit Sopranos), but the food was way over-priced for what you get. The Cali burrito was mostly just dough-wrap with a piddly amount of filling. The taco looked like an hors d’oeurve—I would have needed at least 4-5 to fill up a lunch.

I think RBD are going the wrong direction with this. They’re charging fancy prices, with fancy drinks (eventually), but the food isn’t fancy. It’s plain. I hope they either lower their prices and go for the true fast-food customers, or improve their food significantly (both in substance and in taste).

[Snoopy]

Tried out the new Taco Bell store yesterday. I shouldn’t have gone with such high expectations. The store itself looks nice (although the ‘bouncers’ limiting the number of patrons through felt a bit Sopranos), but the food was way over-priced for what you get. The Cali burrito was mostly just dough-wrap with a piddly amount of filling. The taco looked like an hors d’oeurve—I would have needed at least 4-5 to fill up a lunch.

I think RBD are going the wrong direction with this. They’re charging fancy prices, with fancy drinks (eventually), but the food isn’t fancy. It’s plain. I hope they either lower their prices and go for the true fast-food customers, or improve their food significantly (both in substance and in taste).

Thanks for your report Jonboyz. Out of curiosity I got on the net to have a look at the Taco Bell menus and pricing in Hawaii. For some reason I found myself blocked from accessing this information. Anyone else able to get into the official website? No matter, I found what I was after here:

https://1000menuprices.net/taco-bell-menu-prices-in-hawaii/

The NZ menu can be found here:

https://static1.squarespace.com/static/5db0bc081b25a26c8d30a2b8/t/5dca1260812b853a344fe7fc/1573524182141/Taco+Bell+Menu.pdf

Of course the menus are not exactly the same in NZ and Hawaii. But a comparison of 'like named' items is nevertheless telling:




HawaiiNew Zealand


Double Taco Supreme
$US3.31/0.63= $5.35$8.50
(basic)



Double Taco Supreme Combo
$US3.71/0.63= $5.89$12.00(basic)


Grilled Stuft Burrito
$US5.31/0.63= $8.43 (XXL)$8.99(luxury)


Chicken Queasdilla
$US1.33/0.63= $2.11 (mini)$6.99(basic)


Soft Drink (Coke)
$US1.98/0.63= $3.14 (480ml)$3.60 (420ml)



Those NZ prices include GST and the Hawaiian prices may not include sales tax. If someone can tell me the sales tax rate in Hawaii I will amend those US prices.

The prices don't look so different when converted into $NZ, except the 'basic' items look to cost less in the US. I think the niche for a new entrant in the Mexican food market is 'basic'. So I hope the strategy of trying to be 'mid market' when the product is 'anything but' will not backfire in NZ.

SNOOPY

[winner69]

You guys have put me off already, esp the bit about the size of the tacos

Think i’ll Stick to the local if Taco Bell ever come to Wellington

https://www.vivamexico.co.nz/product/flautas/

[etnom]

[QUOTE=winner69;778384]You guys have put me off already, esp the bit about the size of the tacos

From when have Cool Cats started having a sniff at tacos

[Raz]

Thanks for your report Jonboyz. Out of curiosity I got on the net to have a look at the Taco Bell menus and pricing in Hawaii. For some reason I found myself blocked from accessing this information. Anyone else able to get into the official website? No matter, I found what I was after here:

https://1000menuprices.net/taco-bell-menu-prices-in-hawaii/

The NZ menu can be found here:

https://static1.squarespace.com/static/5db0bc081b25a26c8d30a2b8/t/5dca1260812b853a344fe7fc/1573524182141/Taco+Bell+Menu.pdf

Of course the menus are not exactly the same in NZ and Hawaii. But a comparison of 'like named' items is nevertheless telling:




HawaiiNew Zealand


Double Taco Supreme
$US3.31/0.63= $5.35$8.50
(basic)



Double Taco Supreme Combo
$US3.71/0.63= $5.89$12.00(basic)


Grilled Stuft Burrito
$US5.31/0.63= $8.43 (XXL)$8.99(luxury)


Chicken Queasdilla
$US1.33/0.63= $2.11 (mini)$6.99(basic)


Soft Drink (Coke)
$US1.98/0.63= $3.14 (480ml)$3.60 (420ml)



Those NZ prices include GST and the Hawaiian prices may not include sales tax. If someone can tell me the sales tax rate in Hawaii I will amend those US prices.

The prices don't look so different when converted into $NZ, except the 'basic' items look to cost less in the US. I think the niche for a new entrant in the Mexican food market is 'basic'. So I hope the strategy of trying to be 'mid market' when the product is 'anything but' will not backfire in NZ.

SNOOPY

If you were comparing disposable income basis, social/economic, you would look at dollar for dollar, Taco Bell in the US is budget. Hawaii is expensive for a US state and given the level of tourism. It's the place you go in the middle of the night en-route on a long road trip...starving is the prerequisite to enjoy the food, always drive through as the car park and around the restaurant is borderline dangerous. It food for the masses of working poor in the US, although I will say i actually like it:)

[Snoopy]

If you were comparing disposable income basis, social/economic, you would look at dollar for dollar, Taco Bell in the US is budget.


In dollar terms, $US3.31 (or $US3.44 including a 4% sales tax) for a 'Double Taco Supreme' in Hawaii and $NZ8.50 for what looks like the same thing in NZ is hardly egalitarian. Yet in wage terms, the minimum wages in Hawaii is currently $US10.10 per hour vs $NZ17.70 per hour in New Zealand. So if we calculate the number of 'Double Taco Supremes' that can be bought with the gross earnings of a minimum wage worker in an hour I get:

Hawaii: $US10.10 / $US3.44 = 2.94

New Zealand: $NZ17.70 / $US8.50 = 2.08

So as a rich country with high minimum wages, we aren't as badly off as just looking at those dollar prices alone might make you think. If Taco Bell has chosen not to aim for the 'low end' of the takeaway food market in NZ offering really cut prices it might be a smart move. There may not be enough poor people in Auckland to support a genuine US style Taco Bell?



Hawaii is expensive for a US state and given the level of tourism. It's the place you go in the middle of the night en-route on a long road trip...starving is the prerequisite to enjoy the food, always drive through as the car park and around the restaurant is borderline dangerous. It food for the masses of working poor in the US, although I will say I actually like it:)

My reasons for quoting Hawaiian prices were two fold:

1/ Both Hawaii and New Zealand are prime tourism destinations.
2/ Taco Bell is run in both countries by 'Restaurant Brands New Zealand'

I have never spent any time in Hawaii myself. However, on talking to someone who has I was told there is very much a two tier tourist market. You are either:

1/ a hotel customer or
2/ a tenter who gets up to decamp at the crack of dawn to avoid the state ranger coming around to collect the state camping ground fee.

There isn't much in between. So maybe your picture of Taco Bell in Hawaii as a 'crime scene in waiting' frequented by the desperate is not so far from the truth Raz?

SNOOPY

[Raz]

In dollar terms, $US3.31 (or $US3.44 including a 4% sales tax) for a 'Double Taco Supreme' in Hawaii and $NZ8.50 for what looks like the same thing in NZ is hardly egalitarian. Yet in wage terms, the minimum wages in Hawaii is currently $US10.10 per hour vs $NZ17.70 per hour in New Zealand. So if we calculate the number of 'Double Taco Supremes' that can be bought with the gross earnings of a minimum wage worker in an hour I get:

Hawaii: $US10.10 / $US3.44 = 2.94

New Zealand: $NZ17.70 / $US8.50 = 2.08

So as a rich country with high minimum wages, we aren't as badly off as just looking at those dollar prices alone might make you think. If Taco Bell has chosen not to aim for the 'low end' of the takeaway food market in NZ offering really cut prices it might be a smart move. There may not be enough poor people in Auckland to support a genuine US style Taco Bell?



My reasons for quoting Hawaiian prices were two fold:

1/ Both Hawaii and New Zealand are prime tourism destinations.
2/ Taco Bell is run in both countries by 'Restaurant Brands New Zealand'

I have never spent any time in Hawaii myself. However, on talking to someone who has I was told there is very much a two tier tourist market. You are either:

1/ a hotel customer or
2/ a tenter who gets up to decamp at the crack of dawn to avoid the state ranger coming around to collect state camping ground fee.

There isn't much in between. So maybe your picture of Taco Bell in Hawaii as a 'crime scene in waiting' frequented by the desperate is not so far from the truth Raz?

SNOOPY

Hawaii is very different to New Zealand economic wise, it is a tourist destination however really a group of small Islands with a few defence bases. The poor half certainly live in what is more like an island back water. Think Fiji, inland basic houses with cheap apartments for the main workers in the main city of Waikiki. Min. wage means little when the majority of jobs are hospitality, priced on a tip based culture .

It is an outlier to other states within the US and except for RB Taco same ownership I would say a totally different economy to NZ. The concept is from the mainland USA where it is budget grub, how they sell it otherwise here is my question. Those prices mention in Hawaii are higher than what I pay, say in LA, from my experience. i get a meal of several item and drink for less than $5 US each when there. We are getting in NZ rather expensive for takeaways here so perhaps it is possible..

[winner69]

Not a good look

https://www.stuff.co.nz/national/117973819/pizza-hut-kfc-workers-break-silence-on-rape-threats-and-harassment

[Balance]

Not a good look

https://www.stuff.co.nz/national/117973819/pizza-hut-kfc-workers-break-silence-on-rape-threats-and-harassment

Starting to look like what the Catholic Church used to do - protect the abusers, promote and move them to other locations and blame the victims?

[winner69]

Starting to look like what the Catholic Church used to do - protect the abusers, promote and move them to other locations and blame the victims?

....and if corporates see staff are just another consumable such things will continue

Shareholder profits first

[Balance]

....and if corporates see staff are just another consumable such things will continue

Shareholder profits first

Must say it is absolutely staggering after all the publicity in recent years of HOW NOT to handle sexual abuse cases (Catholic Church, Epstein, Weinstein, Kevin Spacey etc etc etc), RBD still appears to have no idea and no coherent procedures to deal with complaints.

Victimizing the victims twice at this day and age is simply unforgivable! As for promoting the abusers as reward seemingly for such behavior - beyond comprehension and totally repugnant.

"The man was subsequently promoted to supervisor. While the investigation was underway, the man was moved to another Restaurant Brands store and promoted again, this time to assistant manager.":t_down:

"The harassment and grooming ceased when the man transferred to another store, but started again when he came back to the Pizza Hut ... I found out a while later he was working at KFC - so he's still at Restaurant Brands.":t_down:

"The company refused to move her to another store, and initially refused to give her any leave, while Singh was stood down on full pay." :t_down:

[fungus pudding]

In dollar terms, $US3.31 (or $US3.44 including a 4% sales tax) for a 'Double Taco Supreme' in Hawaii and $NZ8.50 for what looks like the same thing in NZ is hardly egalitarian. Yet in wage terms, the minimum wages in Hawaii is currently $US10.10 per hour vs $NZ17.70 per hour in New Zealand. So if we calculate the number of 'Double Taco Supremes' that can be bought with the gross earnings of a minimum wage worker in an hour I get:

Hawaii: $US10.10 / $US3.44 = 2.94

New Zealand: $NZ17.70 / $US8.50 = 2.08

So as a rich country with high minimum wages, we aren't as badly off as just looking at those dollar prices alone might make you think. If Taco Bell has chosen not to aim for the 'low end' of the takeaway food market in NZ offering really cut prices it might be a smart move. There may not be enough poor people in Auckland to support a genuine US style Taco Bell?



My reasons for quoting Hawaiian prices were two fold:

1/ Both Hawaii and New Zealand are prime tourism destinations.
2/ Taco Bell is run in both countries by 'Restaurant Brands New Zealand'

I have never spent any time in Hawaii myself. However, on talking to someone who has I was told there is very much a two tier tourist market. You are either:

1/ a hotel customer or
2/ a tenter who gets up to decamp at the crack of dawn to avoid the state ranger coming around to collect the state camping ground fee.

There isn't much in between. So maybe your picture of Taco Bell in Hawaii as a 'crime scene in waiting' frequented by the desperate is not so far from the truth Raz?

SNOOPY

https://www.thebalance.com/what-is-the-big-mac-index-1978992

the Big Mac index is always interesting.

[Balance]

Not a good look

https://www.stuff.co.nz/national/117973819/pizza-hut-kfc-workers-break-silence-on-rape-threats-and-harassment

I see the writer is Alison Mau, #MeTooNZ Reporter for Stuff.

If RBD thinks the CEO apology will shut this scandal down, I suspect they have a rude awakening ahead - there will be many more articles ahead as it's likely that other RBD staff members will come forward and tell their stories.

What happens when you hire the wrong HR people.

[winner69]

I see the writer is Alison Mau, #MeTooNZ Reporter for Stuff.

If RBD thinks the CEO apology will shut this scandal down, I suspect they have a rude awakening ahead - there will be many more articles ahead as it's likely that other RBD staff members will come forward and tell their stories.

What happens when you hire the wrong HR people.

Chief NZ HR been in that role since mid 2018 but was doing serious HR work for them in year earlier

The Group Chief HR been around for zonks

So the people who mattered were around when the rape complaint was made.

And throughout this sorry saga Russel has been around.

[winner69]

RBD Board never had many female directors.

[percy]

RBD Board never had many female directors.

Therefore no cases of groping or rape at board level.Sensible.

[Beagle]

"All over again I was being treated like I was nothing. I meant nothing. It made me feel like coming forward was not the right thing to do."

Effectively she was raped again by the company. I am absolutely appalled. I just thought their food was a danger to your health. WOW, what an eye opener.
I hope Alison Mau takes an extremely dogged approach to reporting future issues with RBD.
Their culture looks extremely toxic to me.

[Snoopy]

Chief NZ HR been in that role since mid 2018 but was doing serious HR work for them in year earlier

The Group Chief HR been around for zonks

So the people who mattered were around when the rape complaint was made.

And throughout this sorry saga Russel has been around.

Didn't I read at one point that all the RBD HR work has been centralised. Bureaucrats in Auckland deciding who they will employ in Christchurch without even meeting the prospective employee? All instituted under 'Our Russel' too!

Hmmm, it is looking like that knighthood for Russel is getting a little further away. What about a more h(andy)and appropriate honour like a princehood though? Then when Russel shows up to collect his award, take his 'prints' and throw him in the slammer!

SNOOPY

[winner69]

Uber Eats doing wonders for Carl’s

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/RBD/346073/314080.pdf

[mfd]

Uber Eats doing wonders for Carl’s

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/RBD/346073/314080.pdf

It will be interesting to see the effects on their margins. Burgerfuel have stayed away from Uber eats claiming it would grow their revenue but not their profit, so not worth their time. From their recent announcement:

" It has become clear that many restaurants that have engaged Uber Eats as a third-party sales and delivery channel have found the economics of this model to be largely unsustainable"

[Jay]

It will be interesting to see the effects on their margins. Burgerfuel have stayed away from Uber eats claiming it would grow their revenue but not their profit, so not worth their time. From their recent announcement:

" It has become clear that many restaurants that have engaged Uber Eats as a third-party sales and delivery channel have found the economics of this model to be largely unsustainable"

Have heard of a few restaurants ditch Uber eats in Auckland, yes revenue went up, but unless you are one of the bigger players and negotiate a more favourable commission, it becomes unprofitable. One guy closed due the foot traffic fell so much, but still doing about the same revenue wise (before commission payments) and was not making any money.
I would think RBD would have negotiated a lower payment.

[Joshuatree]

RBD Announces 70 Store Acquisition in California 1 page 29.9KB (https://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=02188318)

[stealthmaster]

RBD Announces 70 Store Acquisition in California 1 page 29.9KB (https://www.asx.com.au/asx/statistics/displayAnnouncement.do?display=pdf&idsId=02188318)


Restaurant Brands has 261 stores currently, so 70 is a huge addition???

[Joshuatree]

Twenty Seven % increase.

[Timesurfer]

Be interesting to see if they can manage such an increase.

[Balance]

I see the writer is Alison Mau, #MeTooNZ Reporter for Stuff.

If RBD thinks the CEO apology will shut this scandal down, I suspect they have a rude awakening ahead - there will be many more articles ahead as it's likely that other RBD staff members will come forward and tell their stories.



As predicted :

https://www.stuff.co.nz/business/118396656/dozens-claim-sexual-harassment-assault-at-restaurant-brands-fast-food-stores--survey

"Half of all Restaurant Brand workers who responded to a survey said they'd been personally affected or witness to sexual harassment at work."

Guess Russel is too busy with big deals & acquisitions overseas to get involved in trivial matters like sexual harassment in RBD's stores?

Cases going to court will give him and his HR people ongoing reminders in 2020.

[blackcap]

Shareprice seems to be pumping along. Market says nothing to see here, no worries.

[Airw0lf]

Shareprice seems to be pumping along. Market says nothing to see here, no worries.

Which is kind of a sad commentary on society I guess.

[blackcap]

Not condoning behaviour at all but a few facts. From what I can see a loaded survey question to 9,000 current and ex employees got 168 responses (less than 2%). Of these according to the 'analysis' of the survey by Unite union and Ms Mau, ~50% had some form of concerns re sexual assault, i.e. ~84 or less than 1%. Now I'm not sure what the rate of sexual harassment is in the general working world (not that any is acceptable of course) but this doesn't seem to me to be a rate at RBD that deserves the tag of "Restaurant Brands was by far the worst - which appeared to be a "deep-rooted issue with its company culture".

It is quite possible that Stuff are targeting RBD for whatever reason, and that the culture at McDonalds, Pop and mom restaurant, et al is similar or worse.

[Southern_Belle]

Where there is smoke there is fire .... they may think they are sweeping it under the carpet but they are kicking the can down the road by not addressing it. I know of a young CHCH based KFC employee bragging she gets an extra $200 per week in her wages to bonk the boss ...at work!!!

[fungus pudding]

Where there is smoke there is fire .... they may think they are sweeping it under the carpet but they are kicking the can down the road by not addressing it. I know of a young CHCH based KFC employee bragging she gets an extra $200 per week in her wages to bonk the boss ...at work!!!

She'd be much better paid free-lancing in the square.

[winner69]

Where there is smoke there is fire .... they may think they are sweeping it under the carpet but they are kicking the can down the road by not addressing it. I know of a young CHCH based KFC employee bragging she gets an extra $200 per week in her wages to bonk the boss ...at work!!!

That’s an awful story Southern Belle.

She wouldn’t be bragging if it wasn’t true would she?

[fungus pudding]

That’s an awful story Southern Belle.

She wouldn’t be bragging if it wasn’t true would she?

Don't bet on that.

[artemis]

Don't bet on that.

Could be. There's a current article in the Atlantic Monthly called Why Kids Online Are Chasing ‘Clout’.

Basically it has become common for them to do or say whatever it takes for clout. Not new of course, but seems more pervasive among the young who live their lives in social media.

[Balance]

Not condoning behaviour at all but a few facts. From what I can see a loaded survey question to 9,000 current and ex employees got 168 responses (less than 2%). Of these according to the 'analysis' of the survey by Unite union and Ms Mau, ~50% had some form of concerns re sexual assault, i.e. ~84 or less than 1%. Now I'm not sure what the rate of sexual harassment is in the general working world (not that any is acceptable of course) but this doesn't seem to me to be a rate at RBD that deserves the tag of "Restaurant Brands was by far the worst - which appeared to be a "deep-rooted issue with its company culture".

It is quite possible that Stuff are targeting RBD for whatever reason, and that the culture at McDonalds, Pop and mom restaurant, et al is similar or worse.

RBD has allowed the sexual harassment practices to go unchecked - until Stuff brought it to public attention.

Why would you refer to culture in other places like MacDonalds etc in response to very specific instances of not only sexual harassment but sexual assaults & even rape at RBD? There is no complaints at MacDonalds which we are aware of of or if there were, MacDonalds have dealt with so the victims did not feel victimized again and victims are not deterred from making complaints.

Shame on you, Blackcap for your insinuations.

[Balance]

She'd be much better paid free-lancing in the square.

Agreed.

Show the pathetic mindset of said individual.

[jonu]

RBD has allowed the sexual harassment practices to go unchecked - until Stuff brought it to public attention.

Why would you refer to culture in other places like MacDonalds etc in response to very specific instances of not only sexual harassment but sexual assaults & even rape at RBD? There is no complaints at MacDonalds which we are aware of of or if there were, MacDonalds have dealt with so the victims did not feel victimized again and victims are not deterred from making complaints.

Shame on you, Blackcap for your insinuations.

I thought he made valid points. Percentage wise against the total number of employees it wouldn't appear to be widespread.

DISCL: Not holding

[Balance]

I thought he made valid points. Percentage wise against the total number of employees it wouldn't appear to be widespread.

DISCL: Not holding

The issue (like that of the sexual abuses at the Catholic Church) is not just that the sexual assaults and harassment took place, it is the way that RBD management dealt with it - blaming the victims, promoting & transferring the predators and treating the victims worse than the predators.

How many in the Roman Catholic Church do you think were involved in the abuse cases?

[Ggcc]

As predicted :

https://www.stuff.co.nz/business/118396656/dozens-claim-sexual-harassment-assault-at-restaurant-brands-fast-food-stores--survey

"Half of all Restaurant Brand workers who responded to a survey said they'd been personally affected or witness to sexual harassment at work."

Guess Russel is too busy with big deals & acquisitions overseas to get involved in trivial matters like sexual harassment in RBD's stores?

Cases going to court will give him and his HR people ongoing reminders in 2020.
Unfortunately it happens in most if not all organisations. Also loads of women tend to leave their job rather than report sexual harassment, as it can affect their career if they complain.

[jonu]

The issue (like that of the sexual abuses at the Catholic Church) is not just that the sexual assaults and harassment took place, it is the way that RBD management dealt with it - blaming the victims, promoting & transferring the predators and treating the victims worse than the predators.

How many in the Roman Catholic Church do you think were involved in the abuse cases?

Agreed. There would appear to be similarities. Percentage wise the the offending rate was low in the Church as well. (not that the general public took much note of that)

Again, looking at the breakdown of the survey (according to the report), the numbers of poorly handled cases can't be high either, albeit 1 is 1 too many.

I am a little nervous of Stuff and Alison Mau. Note the #MeTooNZ is attributed as a "partnership" between Mau and Stuff.

[Balance]

Unfortunately it happens in most if not all organisations. Also loads of women tend to leave their job rather than report sexual harassment, as it can affect their career if they complain.

All the more reason why big companies like RBD must act properly to set examples and standards for others to follow.

I worked for a company where any staff can complain to HR about any form of harassment and the complaint has to be and is investigated. I have seen action taken (extremely severe) against the perpetrators. Everyone in the company get the message very quickly.

Russell McVeagh is a good case in recent times of perpetrators losing their positions and reputations. Law firm parties are now rather tame.

We live in different times now - which is why it is astounding that RBD still involved itself in cover-ups and further victimization of the abused individuals!

[blackcap]

RBD has allowed the sexual harassment practices to go unchecked - until Stuff brought it to public attention.

Why would you refer to culture in other places like MacDonalds etc in response to very specific instances of not only sexual harassment but sexual assaults & even rape at RBD? There is no complaints at MacDonalds which we are aware of of or if there were, MacDonalds have dealt with so the victims did not feel victimized again and victims are not deterred from making complaints.

Shame on you, Blackcap for your insinuations.

I am not insinuating anything. I just feel that RBD for some reason have been targeted by Stuff (maybe they are the worst offender out there/or not or maybe they are the easiest target to bash) Sexual assault/abuse at work should never be tolerated and RBD need to front the issue. All I am saying is that other organisations whoever they may be probably have just as high a rate of said problem and for Stuffed to target RBD is a bit rich. They should be targeting all businesses to clean up their act.

[Airw0lf]

All I am saying is that other organisations whoever they may be probably have just as high a rate of said problem and for Stuffed to target RBD is a bit rich. They should be targeting all businesses to clean up their act.

I'm not really sure what you mean by "They should be targeting all businesses to clean up their act." Stuff would have limited resources so I'm not sure they could be expected to conduct an exhaustive search of all major businesses/organisations and publish a comparative analysis so as to not hurt the feelings of one particular entity. That said, if you read their section on #metoo (https://www.stuff.co.nz/national/me-too-nz) you will see that they have done investigations and commentary into RBD, Parliament, NZDF, NZ Cricket, TVNZ, etc. So it's not like they are crusading against only RBD.

[Southern_Belle]

I'm not really sure what you mean by "They should be targeting all businesses to clean up their act." Stuff would have limited resources so I'm not sure they could be expected to conduct an exhaustive search of all major businesses/organisations and publish a comparative analysis so as to not hurt the feelings of one particular entity. That said, if you read their section on #metoo (https://www.stuff.co.nz/national/me-too-nz) you will see that they have done investigations and commentary into RBD, Parliament, NZDF, NZ Cricket, TVNZ, etc. So it's not like they are crusading against only RBD.Look at that thing go

[Snoopy]

Following my March 2019 post, the remaining shares are trading at $9.45 already! I have to admit I am stunned as there has been no real strategic news following on from the closing of the takeover offer at an effective price of $8.89 (my post 2439). Big announcements expected at the upcoming AGM? I am also surprised that RBD is hanging onto its position in the NZX50 now that 75% of the shares are locked up. I am still hanging on to the balance of my shares post the takeover.

Feeling a bit guilty now with my campaign to convince shareholders that the share price would fall substantially post takeover. But I don't retract any of my analysis that lead me to that decision. Maybe it is just a case of the market behaving in mysterious ways over the short term?


Touching $14 again today and I am floored. With 125.758 million shares on issue, RBD is now a $1,760 billion company. It doesn't seem that long ago that our Russel set himself the goal of creating a $1b company. Now the valuation is nearer to twice that! An interesting twist to this ramp up in share price is that the 25% shares left as free float are now valued at $440m. This should be enough to allow RBD to stay within the NZX50. So much for waiting for the bots to sell down as RBD got tossed out of the NZX50. I don't think it is going to happen!

SNOOPY

discl: still holding my residual RBD

[bull....]

poor old collins food in aus ( kfc) has been savaged by the announcement that all its stores in denmark have to close due to the virus

[Snoopy]

poor old collins food in aus ( kfc) has been savaged by the announcement that all its stores in denmark have to close due to the virus


From a recent high in December 2019 of $10.50 for Collins Foods (CKF), and trading at $4.60 as I write this. A fall of 56%. Ouch!

Mind you, RBD touched $14 in January and is now trading at $8.20. A fall of 41%. Not that much better. Frankly I think the RBD share price deserved to fall from what I saw as ridiculous multiples. But the only silver lining here is that it makes me feel a little better about quitting most of my holding at $9.50 in the partial takeover! Hopefully none of RBD's restaurants will 'do a Denmark'. But even if they do, the KFCs all have 'drive throughs' and more and more stores are doing home deliveries. So I am reasonably comfortable with my residual RBD holding.

SNOOPY

[Ecks]

RBD looks to be a buy, Additional Taco Bell stores planned for NZ and AU and KFC deliveries in NZ for Q3 post Covid19 scare could be a potential launching platform. Watch Q2 closely to time a buy as I don't see it falling in Q3 onwards.

[Ecks]

RBD looks to be a buy, Additional Taco Bell stores planned for NZ and AU and KFC deliveries in NZ for Q3 post Covid19 scare could be a potential launching platform. Watch Q2 closely to time a buy as I don't see it falling in Q3 onwards.

SP getting close to pre-Covid!

[kiwidollabill]

SP getting close to pre-Covid!

I really dont get this, surely their quarterly earnings is going to be shot?

[Airw0lf]

I really dont get this, surely their quarterly earnings is going to be shot?

Yeah I have no idea - I got out a couple weeks ago and now look foolish on paper.

Maybe the market is looking past what could be a relatively short lockdown and is also happy that competitor BK is dying.

[nztx]

I really dont get this, surely their quarterly earnings is going to be shot?

Neither do I .. looked when RBD was lower but again fast retracing back upwards..

What are investors buying with a chop of the minority action on this one ?

[Timesurfer]

Some free advertising (https://www.stuff.co.nz/business/121245595/coronavirus-kfc-pizza-hut-owner-asks-staff-to-accept-reduced-hours-or-face-redundancy) for RBD

[blackcap]

I really dont get this, surely their quarterly earnings is going to be shot?

Their quarterly earnings will be. But beyond that, there is likely to be little downside going forward. If you do a DCF analysis and with the discount rate now being lower (almost zero) the impact of this quarter will pretty well be negated. But the risk going forward is that sales do not return to prior levels as distancing and other laws will make it harder for their restaurants to open as before. But I am sure that technology will probably get around that problem.
To be fair though I thought they were a bit pricy just on the metrics pre-covid, so will probably not be buying at these levels.

[Snoopy]

If you do a DCF analysis and with the discount rate now being lower (almost zero) the impact of this quarter will pretty well be negated.


When deriving a 'discount rate', it is common for analysts to use something called the 'Capital Asset Pricing Model'. This uses input figures based on the general economic environment and specific factors related to the particular share you wish to analyse. One such factor is historical 'specific share price volatility' verses 'overall market volatility'. Personally I do not use this method. I prefer to assign an 'industry sector group volatility' figure regardless of any share specific historical volatility.

I tend to use a lower discount factor for any share which supplies basic human needs, like utilities and food companies. One potential flaw in my method has been highlighted by you below blackcap.



But the risk going forward is that sales do not return to prior levels as distancing and other laws will make it harder for their restaurants to open as before. But I am sure that technology will probably get around that problem.


If the business model changes, it could me that my 'assigned discount value' to a particular sector is no longer appropriate. But you can say the same thing about the CAPM, where the input factor of 'historical share price volatility' is likely to be largely unrepresentative in the future too.

I have made a change in my method over the last year or so, lowering my 'industry discount factor' to take into account global interest rates that looked to be keeping lower for longer. The COVID-19 environment makes it likely that interest rates will be even lower for longer. The problem I have with adjusting my 'industry discount rate' again is that eventually discount rates get so low that summing the benefits of future profits can justify almost any share price. By all conventional measuring sticks, the price of RBD shares today is ridiculous, in my view. Yet the more this 'new normal' view on interest rates (and hence discount rates) prevails the more the price of RBD shares today seems 'reasonable'.




To be fair though I thought they were a bit pricy just on the metrics pre-covid, so will probably not be buying at these levels.

I absolutely agree. The longer these super low interest rates continue I can see the seeds being sown of the next market disaster. This being a tiny rise in interest rates from say a risk free rate of 0.5% to just 1% that could see the market fall by 50%. For this reason I cannot bring myself to buy any new shares based on the premise of super low discount rates, RBD included. Yet I can't bring myself to sell my residual RBD post takeover holding, even though I know it is too highly priced. Irrational? Probably yes.

SNOOPY

[DarkHorse]

Surely Collins Foods on ASX represents far better value?

[Snoopy]

Surely Collins Foods on ASX represents far better value?

You could be right Dark Horse

Collins Food @ $A6.28 => PE of 19.4
YUM Brands @ $US85.89 => PE of 20.8
YUM China @ $US43.95 => PE of 23.7
Restaurant Brands @ $NZ11.60 => PE of 40.9

In saying that, RBD has the overseas expansion plans that CKF does not. Yet being the master franchise holder YUM Brands looks the most attractive of the four to me right now.

SNOOPY

discl: hold YUM, YUMC, RBD

[blackcap]

When deriving a 'discount rate', it is common for analysts to use something called the 'Capital Asset Pricing Model'. This uses input figures based on the general economic environment and specific factors related to the particular share you wish to analyse. One such factor is historical 'specific share price volatility' verses 'overall market volatility'. Personally I do not use this method. I prefer to assign an 'industry sector group volatility' figure regardless of any share specific historical volatility.

I tend to use a lower discount factor for any share which supplies basic human needs, like utilities and food companies. One potential flaw in my method has been highlighted by you below blackcap.



If the business model changes, it could me that my 'assigned discount value' to a particular sector is no longer appropriate. But you can say the same thing about the CAPM, where the input factor of 'historical share price volatility' is likely to be largely unrepresentative in the future too.






SNOOPY

Hi Snoopy, yes I know all about the CAPM and WACC. Studied it ad nauseum back in the 90's. And yes you highlight the big drawback or weakness of the CAPM. The very fact that is uses backward looking data to derive future valuation. But out of a bad bunch it is not the worst model out there. Now that we have excel it is so much easier to do DCF simulations and models. O the days at uni where it was all done on paper.. you certainly learnt how to use a calculator that's for sure.

[Cadalac123]

Hi Snoopy, yes I know all about the CAPM and WACC. Studied it ad nauseum back in the 90's. And yes you highlight the big drawback or weakness of the CAPM. The very fact that is uses backward looking data to derive future valuation. But out of a bad bunch it is not the worst model out there. Now that we have excel it is so much easier to do DCF simulations and models. O the days at uni where it was all done on paper.. you certainly learnt how to use a calculator that's for sure.

Thoughts on forward looking based CAPMs? e.g. using implied ERPs and bottom up betas instead of single regression?

I find these models highly subjective though regardless

[huxley]

Sorry for the dumb question, but can anyone tell me what percentage of the RBD stores restaurant brands also owns the buildings/land? Are they mostly leased?

[blackcap]

Thoughts on forward looking based CAPMs? e.g. using implied ERPs and bottom up betas instead of single regression?

I find these models highly subjective though regardless

No real thoughts, if you are going to use bottom up betas instead of regression you also have the subjective part in your model. You are damned if you do and damned if you don't. Bit of hocus pocus all round. But thats ok, thats what makes analysis and finance so fascinating and why so many people have different views on value.

[blackcap]

Seems that KFC brings out the feral in us:

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12328367

[Zaphod]

Seems that KFC brings out the feral in us:

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12328367

That's certainly what we've faced in retail. Rude, arrogant, self-entitled customers who will abuse you to yore face at the drop of a hat. It's also not confined to a particular gender, ethnicity, or age group.

[dreamcatcher]

KFC had to close early as ran-out-of-chicken and McDonalds ran out of hamburgers ............

[blackcap]

So I went to my local to take advantage of the free meal voucher I received yesterday. Interestingly enough, there were signs saying contactless payments only. But no worries, the card was accepted. Also really interesting was that the 3 staff all milling within centimetres of each other that I could see were not wearing any PPE whatsoever. Did not bother me, but you would think from a perception perspective this is not a good look?

[dreamcatcher]

Second Taco Bell store opening shortly in Auckland, might grab a few mates and try out New Lynn's store tomorrow

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12338376

[Snoopy]

SP getting close to pre-Covid!


RBD is certainly a 'darling of the market'. The latest FY2019 Annual Report, the one with the blue cover, ( I say latest as there have been two because of the balance date realignment from end of February to end of December), shows revenue and profit decline. But this is because the 'second' FY2019 reporting year covered only 10 months. The report then talks about annualising profit and revenue figures, without spelling out how this was done. You have to read the chairman's AGM address to find that out (for the NPAT at least). The associated presentation 'Slide 3' shows that the unaudited eight weeks to the end of February 2020 results have been added to the FY2019 10 month result to make up a full calendar year. A further non trivial profit adjustment was the adoption of NZ IFRS16 which changed the accounting treatment of rental property lease payments.





Annualising Net ProfitReference


FY2019 NPAT to 31-12-2019 as declared$30.1m


add Unaudited NPAT for 01-01-2020 to 28-02-2020$7.1m


add Negative effect of adopting NZ IFRS 16 on NPAT$4.532mAR2019(2) p55: $6.076m - $1.547m = $4.532m


add Other Income and Expenses (*)$4.0mAR2019(2) p55: $0.722m - $5.338m = $4.616m (?)


equals Comparative NPAT for FY2019(2)$45.7m





Comparative EBITDA for FY2019(2)$137.1m(As stated in Chairman's address)



(*) 'Other Income and Expenses' in previous years were income and expenses relating the the wholesale support functions that RBD provides to mainly independently franchised Pizza Hutt outlets in New Zealand.


Annualising NZ Revenue

There was a vague reference in AR2019(2) p16 on annualising revenue:

"On a like for like brand footing (total brand sales for the group) are up approximately 5% (when compared to the 52 week comparative period).

The chief executive's {Russel Creedy's) address to the AGM contained a little more information:

"When normalised for 12 months, New Zealand sales were up +3.5% to $434 million."

If we refer back to AR2019(1), the previous reporting year, NZ sales for KFC, Pizza Hutt and Carl's Junior plus 'Other Revenue' summed to:

$356.9m + $101.0m + $31.9m + $30.9m = $520.7m

Add a 3.5% increment onto that and I get $539m for NZ sales. That is a very large discrepancy to the $434m Russel claims as 'normalised'.

If we refer back to AR2019(2) p17,18,19, the current 'year' (actually 10 months), NZ sales for KFC, Pizza Hutt and Carl's Junior summed to:

$325.8m + $85.2m + $29.9m = $440.9m

This is above Russel's normalised NZ $434m figure for the whole year! How can this be? Something very strange has gone on with the annualising process here. Can anyone explain?


Annualising Australian Revenue

Moving to the Australian result, Russel says:

"On a full year equivalent basis sales were up +5.7% or $A10 million. "

Once again I refer back to AR2019(1) and Australian sales were listed at $A178.3m. So this implies a full year comparative sales figure over FY2019(2) of:

$178.3m x 1.057 = $188.5m, which is an increment of $A10m. Russel and I agree on that figure at least!

Annualising Hawaiian Revenue

Russel made no mention of this in his address. Very disappointing considering the effort he went to annualise revenue in the other jurisdictions in which RBD operates. However, if we look in AR2019(2) we can see that total Hawaiian sales added to: $66.5m + $44.1m = $110.6m. Russell quotes $111m in his AGM address which lines up. So this is confirmation that Russel hasn't bothered to annualise the Hawaiian result.

Annualising Revenue Conclusion

The reporting is inconsistent across geographies, and the NZ annualised result just looks wrong. I am forced to resort to the rather vague Annual Report 2019(2) p16 reference:

"On a like for like brand footing (total brand sales for the group) are up approximately 5% (when compared to the 52 week comparative period).

to determine annualised company revenues. Last years revenue (i.e. from AR2019(1) ), including other income, amounted to $824.9m: $824.9m x 1.05 = $866.1m. If we look on p7 of AR2019(2) we see a revenue figure of $867.1m. That is close enough to be the same number, if you take into consideration the multiplier margin of error. From that I can conclude that the figure of $867.1m is the annualised annual revenue figure today (even though AR2019(2) doesn't specifically say that).

SNOOPY

[Snoopy]

During 2016 'Restaurant Brands' has reinvented itself. What was a 'domestic franchisee' has become a 'multi-brand international restaurant business'. The vision is now:

"To be a leading operator of enduring and innovative Quick Service Restaurant (QSR) Brands in the jurisdictions in which the company operates."

Since this 'change of focus', there has been a push into the Australian and in particular the New South Wales' market. Restaurant Brands now owns more KFC outlets in Sydney/ New South Wales than any other KFC operator (61 stores). Similarly the push into Hawaii, with the acquisition of 'Pacific Island Restaurants', sees them controlling the largest QSR restaurant chain in that state (with 45 Pizza Hut Stores combined with 37 Taco Bell outlets). As part of this transition, the Starbucks franchise of coffee stores within New Zealand has been sold. The KFC chain (No. 1 in the fast food chicken market) and Pizza Hut (no.2 in the Pizza market) remain as part of the stable. Restaurant Brands is now the 'master franchisee' for Pizza Hut in New Zealand, with the provincial and lower volume stores being sold off to local operators. The roll out of the Carls Junior Burger chain seems to have stalled with total chain numbers down to 18. They are not a top three market player, being behind McDonalds (167 outlets), Burger King (83 outlets) and the locally owned Burger Fuel chain (52 outlets), and Wendy's Burgers (21 outlets).

Restaurants Brands must carefully follow the prescription of their master franchise owners for each restaurant concept. However there is some freedom and Restaurant Brands feel they can add particular value in both:

1/ Marketing AND
2/ Facility and supply chain management

Conclusion: Pass Test for New Zealand, Hawaii and New South Wales (with the exception of Carls Junior in the burger market in NZ).


'Restaurant Brands' (RBD) are now 75% owned by 'Finaccess Capital' (stake acquired in April 2019) headquartered in Mexico. 'Finaccess Capital' was created from money received by the Fernandez family (Carlos Fernandez is now on the RBD board) from the buyout of Mexico's 'Grupo Modulo', a beer market giant that was gobbled up by an even bigger beer fish 'Anheuser Busch', the world's biggest brewing company. 'Finaccess Capital' has a strong presence in the casual dining and quick service restaurant sector. It currently holds a 67% stake in 'Amrest Holdings BV', a similarly (from YUM Brands) franchised fast food company in Europe that is listed on the Polish Stock Exchange. Nevertheless, the intention is to maintain operational separation between 'Restaurant Brands' and 'Amrest'.

'Restaurant Brands' might now be better named as 'YUM Pacific'. YUM Brands is the master franchise holder of the 'KFC' , 'Pizza Hut' and 'Taco Bell' brands globally. 'Restaurant Brands' operates franchised YUM branded restaurants and is looking to add their own unique restaurant designs and menu adaptations and local promotions. This tailors the offering to meet the expectations of consumers around the Pacific Rim: New Zealand, Australia, Hawaii, Guam and now California. In California, a conditional deal is in place to acquire 70 both 'pure KFC' and 'KFC/Taco Bell paired' restaurants. 'Restaurant Brands', aside from being a Pacific Regional YUM Franchise, operate 18 'Carl's Junior' Burger themed restaurants in NZ. But they are not rolling out any more 'Carls Junior Restaurants'. And the niche chain of 'Starbucks' coffee houses that 'Restaurant Brands' used to run in NZ has been sold.

'Restaurant Brands' are already the largest KFC franchise operator in New Zealand and New South Wales in Australia. Likewise they have a strong position in greater Hawaii with 'Taco Bell' and 'Pizza Hut'. 'Pizza Hut' in NZ continues to be under profitability pressure (most outlets are now independently franchised and more independent franchising is planned) even if it remains the second largest Pizza operator by footprint (now 102 NZ stores). The are 439 KFC stores in California

https://leadsdeposit.com/list-of-all-kfc-locations-in-the-us/

and 'Restaurant Brands' are looking to own 70 of those. It is RBD's intention to strengthen their position in California and Australia over time, both buying existing stores and opening new ones. Interestingly, new RBD Chairman Jose Pares sees California as 'relatively underpenetrated' by KFC' (AR2019(2) p26).

The position of 'Carl's Junior' in The NZ environment is of a 'niche payer'. It would not surprise me, now that RBD is seeing 'Taco Bell' as the prime development goal for building new restaurants in Australia and NZ (60 stores over the next 5 years), to see 'Carl's Junior' sold off much as 'Starbucks' was last year.

The company mission goal now is the 'big dollar target', chasing $1billion in annual revenue (annualised revenue is already at $867.1m ( AR2019(2) p6 ). To reach this goal dividends have ceased and the earnings generated from the business is being reinvested. But will this single minded growth goal see the balance sheet stretched too far in a post Coivid-19 world where debts remain but revenue to service those debts becomes less certain?

Conclusion: In answer to 'Buffett Test 1', PASS TEST (as regards being a major market player). RBD are very significant players with 'KFC'/'Pizza Hut' in NZ,' KF'C' in New South Wales and 'Taco Bell' and 'Pizza Hut' in Hawaii. 'KFC' in California and 'Taco Bell' in Australia and N.Z. are developing market positions and are likely to form the bulk of future growth plans.

SNOOPY

[Snoopy]

I have used the net profit after tax, excluding non-trading items for the purpose of this comparison. Non trading items include those associated with store closures and sales transformation costs and insurance payments. These are omitted because they obscure how the business is performing on the ground.

Net Profit/No.of Shares

2015: $22.523m /97.871m = 23.0cps
2016: $24.207m /102.871m = 23.5cps
2017: $30.567m /122.843m = 24.9cps
2018: $40.361m /123.629m = 32.7cps
2019: $42.181m /124.758m = 33.8cps


Conclusion: Pass Test



I have used the net profit after tax, excluding non-trading items for the purpose of this comparison. Non trading items include those associated with store closures and sales transformation costs and insurance payments. These are omitted because they obscure how the business is performing on the ground.

Net Profit/No.of Shares

2016: $24.207m /102.871m = 23.5cps
2017: $30.567m /122.843m = 24.9cps
2018: $40.361m /123.629m = 32.7cps
2019(1): $42.181m /124.759m = 33.8cps
2019(2): $45.7m /124.759m = 36.6cps


Conclusion: PASS TEST

SNOOPY

[Snoopy]

Net Profit excl. non trading / Shareholder Equity EOFY

2015: $22.523m / $71.210m = 31.6%
2016: $24.207m / $75.617m = 32.3%
2017: $30.567m / $192.059m = 15.9%
2018: $40.361m / $201.608m = 20.0%
2019: $42.181m / $224.670m = 18.8%

Conclusion: Pass Test



Net Profit excl. non trading / Shareholder Equity EOFY

2016: $24.207m / $75.617m = 32.3%
2017: $30.567m / $192.059m = 15.9%
2018: $40.361m / $201.608m = 20.0%
2019(1): $42.181m / $224.670m = 18.8%
2019(2): $45.7m / $207.994m = 22.0%

Conclusion: PASS TEST

SNOOPY

[Snoopy]

Reprising the 'Achillies heal' from the Restaurant Brands result from last year: net profit margin.

This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective I am now including 'other revenue' as part of the representative on-going revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be on-going

2015: $22.523m / $372.803m = 6.0%
2016: $24.207m / $404.095m = 6.0%
2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%
2019: $42.2m / $794.0m = 5.3%

The profit margin hasn't got any worse, which is a positive. But it hasn't got any better either. Our Russel has given an object lesson in how to reduce profit margins.

Conclusion: Fail Test

PS Not tempted to top up at today's close of $8.65 either!

Here is the reason I was getting all 'hot and bothered' about calculating an annualised revenue figure in my post 2622 on this thread.

'Margins' in this context means 'Net Profit Margins'. This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective, I am now including 'other revenue' as part of the representative on-going revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be on-going

2016: $24.207m / $404.095m = 6.0%
2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%
2019(1): $42.181m / $824.9m = 5.1%
2019(2): $45.7m / $867.1m = 5.3%

The profit margin hasn't got any worse, which is a positive. But it hasn't really got any better either. I call it 'bouncing around a new bottom'. Our Russel has continued his object lesson in how to reduce net profit margins. Growth in revenue is all very well. But if you are not increasing your profit as a percentage of revenue, and you have to employ new equity to create your growth, 'long term' this can be a formula for standing still on an earnings per share basis.

Conclusion: FAIL TEST

SNOOPY

[Snoopy]

A significant progression has occurred since Restaurant Brands have shifted outlook from becoming a 'domestic franchiser' to an 'international restaurant developer'. The point of failure in the 'Buffett Tests' is now the seemingly ever decreasing net profit margin.

RBD, FY2017 and FY2018 are the periods where the great overseas expansion strategy was coming into play. In AR2018 p26 and p27, CEO Russel Creedy gives a candid interview. He says that to gain the 'growth' required for the company's strategic vision, to become a billion dollar company in revenue and market capitalization, it was necessary to buy that growth by investing overseas. Yet later in that same interview he admits that:

"Our growth strategy also includes new store builds which incidentally generate the highest return in investment."

Putting the two comments together, it is clear that growth overseas where you are generally buying stores rather that building them is less profitable. Sure Taco Bell in Hawaii has a high EBITDA as a percentage of sales at concept level. But this does not include the extra interest costs incurred in funding the purchase, nor the extra more bloated corporate structure behind the scenes needed to manage it.

The ROE decline at RBD has stabilized near 20%. This is still a good figure in absolute terms, albeit well down on 30% that was regularly attainable when RBD was an NZ focussed business. Yet so great has been the drop against a background of the NZ side of the business doing well, I think questions need to be asked as to what the ROE is on the overseas side of the business, and just how far above the cost of capital are these overseas business returns?

Taken overall it looks like RBD are on a path of increasing profits, even in eps terms, but decreasing profitability. Are there shades of Buffett's much derided management phenomenon of the 'institutional imperative' at work here? The naval analogy of the 'institutional imperative' is that our 'captains of industry' would prefer to skipper a battleship, even one with dis-functional weapons than a smaller well armed frigate.

It is possible that RBD will be able to turn their overseas investments around, with more green field KFC projects in New South Wales and a rebuild program in Hawaii that will revamp that states restaurants so that earnings double in that state. However talk that RBD will instead look to acquire more existing restaurants on the West Coast of the United States as their prime growth plan would argue against the positive overseas growth outcome. I think Warren Buffett would be waiting to see if the overseas strategy was not going to degrade the profitability of RBD too much before investing his own money in the RBD story going forwards.


The above is my most recent 'Buffett Conclusion' from two years ago. The story remains the same. An important statistic that RBD quote in their annual report is 'EBITDA as a Percentage of Sales'. (AR2019(2) pp17 to 21). This is important from an operational perspective. But it takes out of focus the cost of capital needed to buy these sales in the first place. If we take a look at the intangible assets on the books ( AR2019(2) Note 20, p84 ) 'Goodwill' stands at $227.841m. Of that total by far the largest is that relating to the KFC expansion into Australia ( $94.552m ) and Taco Bell and Pizza hut in Hawaii ( $120.352m ).

Let's look at KFC Australia as an example. KFC Australia shows a very impressive 15.4% EBITDA to Sales Margin. This figure can be verified from the Segmented Results (AR2019(2) p65).

EBITDA / Total Operating Revenue = $25.900m / $169.105m = 15.3% (Hmm, not quite sure why I don't get 15.4%, but this is close enough)

However if we subtract the interest cost on holding the 'Australian Goodwill' from this calculation, a different picture emerges.

------

Loan Balance Average Over the Year (actually ten month period, 01-03-2019 to 31-12-2019): ($154.328m + $145.823m) /2 = $150.076m
The interest paid on loans can be found in the Cashflow statement ( p61 AR2019(2) ): $5.370m.
Therefore, the implied overall averaged 10 month out of 12 'Interest rate' paid and averaged over all Loans is: $5.370m / $150.076m = 3.6%

-------

1/ This means the implied interest cost on the Australian Goodwill is: 0.036 x $95.442m = $3.436m. This is assuming that all of the Australian equity is being financed by debt. In fact some will be financed by equity. But since the cost of debt is less than the cost of equity, this will be a conservative estimate of the real funding cost.

EBITDA (adjusted for Goodwill Holding Cost) / Total Operating Revenue = ($25.900m - $3.436m ) / $169.105m = 13.3%

That is still good but getting ever closer to RBD's cost of capital. which RBD record as 8.7% for KFC in Australia. So the 'value accreting margin' in Australia for KFC is:

13.3% - 8.7% = 4.6%

2/ Now compare that with the equivalent figure for KFC in New Zealand

The implied interest cost on the New Zealand Goodwill, also modelled as being financed at 3.6% is is: 0.036 x $3.818m = $0.137m

EBITDA (adjusted for Goodwill Holding Cost) / Total Operating Revenue = ($66.100m - $0.137m ) / $308.400m = 21.4%

The cost of capital for RBD in New Zealand is record as 8.9%. So the 'value accreting margin' in New Zealand for KFC is:

21.4% - 8.9% = 12.5%

Note that this is nearly three times the Australian value. This means that each NZ KFC restaurant is generating close to three times the earnings value for RBD compared to their Australian KFC counterpart. The hidden effects of holding all that goodwill should not be underestimated by shareholders! Of course RBD management do not consider this as they are one eyedly pursuing their $1billion dollar revenue goal with little regard to the cost of getting there. There is no doubt that RBD is a good company and potentially a great company. But it does look like there is little control on the cost of expansion, and that is reflected in a new low level of Net Profit margin. For this reason, I don't believe Warren Buffett would be jumping out of his insurance float to invest in RBD today.

SNOOPY

discl: I do hold RBD myself, but on the strength of this analysis am not lining up to buy more

[Snoopy]

From the Buffettology Workbook, p149

"We take the per share amount of earnings retained by a business for a certain period of time then compare it to any increase in per share earnings that occurred during the same period"

In this instance the 'per share earnings retained' has been supplemented by a whole lot of new capital raised with the October 2016 cash issue. I will use the change in shareholders equity from the reporting date before the cash issue (EOFY2016) to the end of FY2019. The extra year that I have brought into this comparison since my FY2018 perspective includes the Hawaiian acquisition (as before), but also the first full year that included all (61) of the Australian KFC outlets acquired to date.



EOFY2016Change]EOFY2019


Normalised Earnings {A}$24.207m]$42.181m


No. of Shares {B}102.871m]124.758m


eps {A}/{B}23.53c+10.28c {D}]33.81c


Owner Equity {C}$75.617m]$224.670m


Owner Equity per share {C}/{B}74c+$1.06 {E}]$1.80


Return on Incremental Equity / Share {D}/{E}+9.7%]



The above result is disappointing. RBD has suspended dividends to fund their expansion plans, raising an incremental amount of new capital to add to the cash issue capital. I would argue that the new capital raised in the cash issue in October 2016 has now had sufficient time to be deployed. Yet the return on new capital over our comparative period has barely improved from FY2018 perspective comparison.

I don't know what the generally accepted value of the cost of capital of RBD is in 2019. But I would guess that 9.7% not far away from it. There must now be doubt as to whether all the new capital being raised is even earning its cost of capital when deployed. This problem is hidden by the extremely strong cost of capital being earned in the legacy New Zealand business.


Another year into the 'great overseas expansion'. To reprise what it was (and is), here is how the RBD 'overseas managed restaurant landscape' has changed since EOFY2016 (28-02-2016) so far:

27-04-2016: QSR Pty Ltd, operating 42 KFC Restaurants in New South Wales acquired.
13-12-2016: 2 KFC stores in New South Wales acquired from Samesa Pty Limited.
13-12-2016: 3 KFC stores in New South Wales acquired from Oshamma Pty Limited.
07-03-2017: Pacific Island Restaurants 'PIR', now 37 Pizza Hut and 37 Taco Bell stores acquired.
17-07-2017: 3 KFC stores in New South Wales acquired from Vida Rica Pty Limited.
28-08-2017: 10 KFC stores in New South Wales acquired from YUM Restaurants International

In addition to these purchases one incremental KFC store was opened in Q3 FY2018 and a second in Q4 FY2019(2). A further KFC store was acquired in December 2019. Very recently a couple of Taco Bell Restaurants have opened in NSW too, but these are not material to the overseas strategy yet.

From the Buffettology Workbook, p149

"We take the per share amount of earnings retained by a business for a certain period of time then compare it to any increase in per share earnings that occurred during the same period"

In this instance the 'per share earnings retained' has been supplemented by a whole lot of new capital raised with the October 2016 cash issue PLUS the fact that no dividends have been paid by RBD since June 2018.. Those unpaid dividends become retained earnings that can then be spent on new restaurant initiatives. I will use the change in shareholders equity from the reporting date before the cash issue (EOFY2016) to the end of FY2019(2). This is the first year that all of the Australian operations and Hawaiian operations have been operating as 'bedded in units'.



EOFY2016Change]EOFY2019(2) (Annualised)


Normalised Earnings {A}$24.207m]$45.7m


No. of Shares {B}102.871m]124.758m


eps {A}/{B}23.53c+10.28c {D}]36.6c


Owner Equity {C}$75.617m]$207.994m


Owner Equity per share {C}/{B}74c+$0.93 {E}]$1.67


Return on Incremental Equity / Share {D}/{E}+11.0%]



The 'overseas expansion period' now covers four years. The above result is a significant improvement on the "Return on Incremental Equity / Share" over the previous two compounded periods (9.5% over two years and 9.7% over three years respectively). Is this proof that the overseas expansion strategy is working? All the new capital raised in the cash issue in October 2016 and those retained dividends has now had sufficient time to be deployed. But much of this business expansion funding is by debt. Using debt will improve the 'Return on Incremental Equity' / 'Share' figure. There is nothing wrong with using debt for expansion of course, provided the debt load does not become excessive. We need to investigate whether excessive debt is being used!

SNOOPY

[Snoopy]

In the fast food industry accounts are normally paid 'on time' and 'in cash'. Furthermore stock turnover is rapid. This enables a fast food business to carry more debt than other retail businesses as cashflow is better. But how much debt is too much debt? Now that RBD has become a 'growth company' and dividends have been suspended, this is a question we shareholders should consider.

My favourite debt measure remains 'MDRT'. Put simply, MDRT is the answer to the question: "If all earnings after tax were poured back into repaying the company's bank debt, how long would that take?" When working out this, we must use a company's declared IFRS profit, not a normalised profit. It takes actual cash to repay a bill!



FY2015FY2016FY2017FY2018FY2019


Bank Term Debt$12.675m$22.550m$46.482m$166.815m$145.853m


less Cash and Cash Equivalents($1.575m)($1.093m)($70.390m)($10.410m)( $15.034m)


equals Net Debt {A}$11.100m$21.457mNM$156.405m$130.819m


Declared NPAT {B}$23.830m$24.070m$25.595m$35.466m$35.741m


MDRT {A}/{B}0.5 yrs0.9 yrs0 years4.4 yrs3.7 yrs



The anomaly in the table was the large amount of cash carried on the balance sheet at EOFY2017. That cash was raised for the Hawaiian settlement that was still pending at balance date. $94 of this cash was raised through the share offer dated 26th October 2016 via a 1: 5.15 cash issue. If we remove that cash from the balance sheet we can get a more representative MDRT figure:

$70.092m / $25.595m = 2.7 yrs

2017 was also the year that RBD announced their change of direction to become a global rather than a solely New Zealand based operator of restaurants. Underlying EPS has risen from 24.9cps to 33.8cps from FY2017 to FY2019 over the two years since. But debt has ballooned as well.

My rule of thumb for the MDRT answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

So no concerns from me with the debt at EOFY2019 levels. Yet given the poor rate of return on RBD's overseas acquisitions so far (my post 2535), the capital position after RBD's next much mooted acquisition may or may not have to be reassessed. The size of any new subsequent acquisition will be the deciding factor.


In the fast food industry accounts are normally paid 'on time' and 'in cash'. Furthermore stock turnover is rapid. This enables a fast food business to carry more debt than other retail businesses as cashflow is better. But how much debt is too much debt? Now that RBD has become a 'growth company' and dividends have been suspended, this is a question we shareholders should consider.

My favourite debt measure remains 'MDRT'. Put simply, MDRT is the answer to the question: "If all earnings after tax were poured back into repaying the company's bank debt, how long would that take?" When working out this, we must use a company's declared IFRS profit, not a normalised profit. It takes actual cash to repay a bill!



FY2015FY2016FY2017FY2018
FY2019(1)FY2019(2)


Bank Term Debt$12.675m$22.550m$46.482m$166.815m
$145.853m$154.326m


less Cash and Cash Equivalents($1.575m)($1.093m)($70.390m)($10.410m)
($15.034m)($34.965m)


equals Net Debt {A}$11.100m$21.457mNM$156.405m
$130.819m$119.361m


Declared NPAT {B}$23.830m$24.070m$25.595m$35.466m
$35.741m$36.650m (a)


MDRT {A}/{B}0.5 yrs0.9 yrs0 years4.4 yrs
3.7 yrs3.3 yrs



(a) $30.542m X (12/10) = $36.650m (Declared profit of $30.542m is for a ten month period)

The anomaly in the table was the large amount of cash carried on the balance sheet at EOFY2017. That cash was raised for the Hawaiian settlement that was still pending at balance date. $94 of this cash was raised through the share offer dated 26th October 2016 via a 1: 5.15 cash issue. If we remove that cash from the balance sheet we can get a more representative MDRT figure:

$70.092m / $25.595m = 2.7 yrs

2017 was also the year that RBD announced their change of direction to become a 'global' rather than a 'solely New Zealand based operator' of restaurants. Underlying EPS has risen from 24.9cps to 36.6cps from EOFY2016 to EOFY2019(2) over the almost four years since. But net debt has ballooned as well.

My rule of thumb for the MDRT answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

So no concerns from me with the debt at EOFY2019(2) levels. But RBD has announced a subsequent acquisition.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/RBD/346496/314595.pdf

"The transaction (to purchase 70 Californian restaurants) is for a purchase price of $US73 million plus capital expenditure reimbursements for recent store refurbishment and customary working capital adjustments. It will be fully debt funded."

I think that translates to about $NZ100m of new debt. Profits at EBITDA level are listed as $US12m+ ($NZ19m+). That is a similar level of historical profitability as RBD's "KFC Australia" investment. Yet given the much reduced profits from Covid-19 flow on effects over FY2020, we may yet see RBD net profits down for the year by 20%. And that means a projected MDRT figure for FY2020 of something like this:

$219.361m / (0.8 x $36.650m) = 7.5

I would call that a worry. But major shareholder 'Finaccess' might say it is 'efficiently maxing out debt covenants'. I will leave you, the investor, to choose the interpretation that you are most comfortable with!

SNOOPY

[Snoopy]

I suspect that valuing RBD on an historical capitalised dividend valuation basis will not be realistic going forwards. Global Valar has got plans for growth. KFC / Pizza Hut concept owner YUM Brands is committed carrying out a sell down of almost all company owned restaurants, to their global franchisees, including the likes of Restaurant Brands, by the end of the calendar year just finished. (the remaining 2% of company owned restaurants on the books in December 2016 not yet sold would be sold down in due course).

Nevertheless, we can regard a capitalised dividend valuation as a 'base case' for a valuation. A middle of cycle business case valuation of $5.45, using my rule of thumb, gives a peak of cycle valuation 20% higher. That means $6.45. This is my target value for topping up my residual RBD holding in the future. That may sound far fetched.in today's heady price environment. But remember the cash issue price for the 26th October 2016 was just $5.15. And that was only two and one half years ago.


The above was written in March 2019. Obviously things have moved on. We can't used the 'Capitalised Dividend Valuation Model' to value RBD any more, because dividends have been cancelled. Yet the company doesn't tick all the boxes to allow a Buffett style growth valuation model to be used either. So what to do? It looks like I will be forced to use an earnings valuation multiple based on EBIT and/or EBITDA. Grant Samuel did this when valuing RBD for the 'Finacces's takeover.

The problem here is that, due to the adoption of NZ IFRS 16, the calculation of both EBIT and EBITDA has changed. From AR2019(2) p80:



Pre NZ IFRS 16AdjustmentsPost NZ IFRS 16


EBITDA before G&A Expenses$115.974m$31.511m$147.485m


General & Administration Expenses($29.427m)$0.857m (2)($28.570m)


EBITDA after G&A Expenses$86.547m$32.368m$118.915m


less Depreciation($25.356m)($22.395m) (1)($47.751m)


less Amortistion($2.178m)$0m($2.178m)


equals EBIT before Other Items$59.013m$9.973m$68.986m



Notes

(1) This adjustment figure is the 'lease depreciation', which did not exist as a separate depreciating item under the superseded accounting standard.

This makes things difficult when using historical EBIT and EBITDA multiples as benchmarks. However, in this case the authors of the annual report have bridged the 'old' and the 'new' way of looking at things. Refer to AR2019(2) sections 1.1, 14,15,16,17,18 and 19.

(2) Why the general and administrative expenses have dropped under NZ IFRS16 is not explained. My guess is that 'head office', not being part of the 'earnings machine', operated under the old NZ IAS 17, on a separate 'finance lease' arrangement. With the adoption of NZ IFRS16, and the distinction between finance leases (that were on the balance sheet), and operating leases (which up to that point were not on the balance sheet) was removed. At that point the former 'finance lease' at head office was reclassified as an 'operating lease'. That replaced what was an 'expense item' with a 'depreciation item', that 'on paper' reduced the General & Administration running costs. In reality these costs were transferred to an alternative deduction in the accounts. I don't know if I am right about this. But it seems the most logical way to explain what has happened..

So we can carry on using historical comparative ratios, provided we use EBIT and EBITDA figures calculated under the 'old standard'. Let's begin!

SNOOPY

[Snoopy]

So we can carry on using historical comparative ratios, provided we use EBIT and EBITDA figures calculated under the 'old standard'. Let's begin!



The following valuation is based on historical earnings as listed in the FY2019(2) annual report that covered the ten month period ended 31-12-2019. Generally you would try to value a company on forecast earnings. However, due to Covid-19, these are likely to be significantly disrupted. By using last years results I am effectively 'looking through' the current financial year with the expectation that earnings will recover to FY2019(2) levels by FY2021. It is up to individual investors to judge how realistic that assumption is.

It is common to value a company based on 'enterprise value'. This reflects the fact that anyone acquiring a company for the purposes of control will have to pay the market value for the shares (a positive asset) and take on the book value of the balance sheet value of the net debt (a negative asset).

Enterprise Value = Market Capitalisation +Total Debt − Cash

In this instance the 'Enterprise Value market factor' is determined by historical earnings multiples that the market has determined it would be willing to pay for similar companies. This information can be found in the 'Target Company Statement' as commissioned by 'Restaurant Brands' in response the 'Finaccess' offer to buy a controlling stake in RBD in early 2019.



Historical EBITDAHistorical EBITReference


As Reported$86.547m$59.013mAR2019(2) page 80 Note 15 (IFRS 16 effects removed)


Normalised for full year ( x12/10) {A}$103.856m$70.816m


Market Multiple {B}10.918RBD Commissioned Independent Advisors Report p32


Net Debt @ 31-12-2019 (Total Debt - Cash) {C}$119.361m$119.361mAR2019(2) p60 'Balance Sheet'


Enterprise Value @ 31-12-2019: {A} x {B} - {C}$1,012.674m$1155.317m


No. of Shares on Issue@ 31-12-2019 124.759m$124.759m


Enterprise Value 'per share'$8.11$9.26



The share price closed at $12.07 on Friday. You could argue that since Covid-19 there has been a 'flight to safety' and those companies supplying staples (like food) have been re-rated. You could also argue that lower market interest rates have themselves pushed share valuations higher. However the premium that the market is pricing into these shares does seem very significant (between 30% and 49%). Good as this company is, it looks to me to be too highly priced to reflect any type of historical norm fair value. There is also some uncertainty as to whether the latest Californian restaurant chain acquisition will put pressure on the company's banking covenants as well. Consequently I would suggest new investors avoid putting money into RBD at these prices.

SNOOPY

discl: who nevertheless intends holding onto my own residual shareholding!

[Snoopy]

There is also some uncertainty as to whether the latest Californian restaurant chain acquisition will put pressure on the company's banking covenants as well.


The is an interesting article here:

https://www.qsrmagazine.com/news/kfc-launches-free-delivery-through-april

'Free delivery' of course equates to 'paid for by the Shareholder delivery'.

"Those who prefer to pick up their meal can order online at kfc.com and pick up in the restaurant from the designated area at the front counter."

and that means the sit down areas of many (all?) KFC restaurants in the USA were closed for over a month.

From this June 2020 article

https://www.qsrmagazine.com/fast-food/yum-sales-gain-momentum-set-new-heights

"About 92 percent of North American units (of KFC, Pizza Hut and Taco Bell) are open. The figure increases to 99 percent if express units are not counted, which are mostly under Pizza Hut".

"Trends have improved meaningfully in recent weeks, however, the COVID-19 pandemic continues to impact sales in numerous markets across the world, particularly in markets where we continue to experience significant temporary restaurant closures,” the company said in a filing. “As we have taken steps in response to the pandemic, our primary focus continues to be the safety of everyone who engages with our brands, including our employees, franchisees, and their team members, and customers.”

This would indicate things have got better since the end of April. But with Covid-19 cases blowing out again in California, the prospect of new county wide restaurant lockdowns are already a reality.

https://la.eater.com/2020/7/1/21310136/los-angeles-restaurant-dining-room-closures-three-weeks-covid-19-pandemic-july-2020

Indoor dining rooms must close. Restaurants will only be allowed to serve customers in outdoor areas, or for takeout and delivery.

"The lockdowns will last for at least three weeks. Restaurant dining rooms were only recently allowed to reopen under specific guidelines and a 60% capacity on May 29 after being ordered to close on March 15 to curb the spread of COVID-19."

None of this can be good for RBD's Californian Restaurant chain purchase. I see settlement was expected by March 2020. But at the AGM the Chairman said:

"Whilst the approval process has been delayed with the recent COVID-19 crisis, we are expecting completion early in the second half of this year"

I wonder if this purchase process will be further delayed, or possibly not go ahead at all?.

SNOOPY

[Snoopy]

Sorry for the dumb question, but can anyone tell me what percentage of the RBD stores restaurant brands also owns the buildings/land? Are they mostly leased?


Sorry for the delay getting an answer to your question Huxley, but no-one has stepped up, so I will give it a go. Here is a quote from an RBD press release dated 21/12/2001 (yes that long ago).

"Restaurant Brands has , since inception, had a policy of investing in store décor , fit out and equipment to sustain and build the in store experiences for our customers. This policy has never included real estate on which the stores are located because the company believes that investing in store assets rather than commercial real estate can make a better return."

"As of September 2001, the company had nearly 200 stores across our three brands (This was when RBD was a pure NZ operation). All Pizza Hut, Starbucks and 30 KFC stores were leased while 57 KFC stores were owned outright."

"In October after a thorough review of several options (included continued retention and disposal by securitization) and taking independent specialist advice, your board approved the sale and leaseback of the currently owned KFC stores. Of the 57 stores owned the company elected to sell 51. The remaining 6 were held for a number of reasons including potential for redevelopment or because of complications in the title that would have impeded the sale and leaseback process."

Tax deductions for depreciation on building structures were removed in the 2011-2012 tax year under the John Key lead national government. As part of the $2.8b support package for business, the Government has reintroduced building depreciation deduction claims for property owners with commercial and industrial properties, at a level of two percent a year, starting in April 2020. I don't see RBD as being a big beneficiary of this change in policy.

SNOOPY

[Snoopy]

'Restaurant Brands' are already the largest KFC franchise operator in New Zealand and New South Wales in Australia. Likewise they have a strong position in greater Hawaii with 'Taco Bell' and 'Pizza Hut'. 'Pizza Hut' in NZ continues to be under profitability pressure (most outlets are now independently franchised and more independent franchising is planned) even if it remains the second largest Pizza operator by footprint (now 102 NZ stores). The are 439 KFC stores in California

https://leadsdeposit.com/list-of-all-kfc-locations-in-the-us/

and 'Restaurant Brands' are looking to own 70 of those. It is RBD's intention to strengthen their position in California and Australia over time, both buying existing stores and opening new ones. Interestingly, new RBD Chairman Jose Pares sees California as 'relatively underpenetrated' by KFC' (AR2019(2) p26).


We haven't heard much progress on the Restaurant Brand's deal to buy 70 KFC restaurants in California and I am wondering if it is time to end this trans pacific foray. The article below is mainly about McDonalds. But the final two sentences that mention KFC are telling:

https://www.qsrmagazine.com/fast-food/mcdonalds-pauses-reopening-covid-surges-nationwide

"Back in March, which feels years ago, Starbucks announced on a Sunday (March 15) it stopped all seating, including café and patios, throughout U.S. and Canada restaurants. This as a slew of states began to pause dine-in service in an effort to stem the spread of COVID-19."

"It carries a familiar vibe to what’s happening today. Just that week alone, Chick-fil-A, Shake Shack, Noodles & Company, Inspire Brands, McDonald’s, Wendy’s, Dunkin’, and KFC followed suit, among others."

If I read that correctly, all dining on KFC premises in mainland USA (and that includes California) has stopped. I would think that is very material to RBD's Californian acquisition proposal. If the deal hasn't been called off, I would suggest there are now strong grounds for a renegotiation on price. If RBD can't get a discount on those Californian restaurants, I would suggest their capital is better spent revamping their Hawaiian operation, and perhaps re-energizing their plans to pick up another swag of KFC restaurants in New South Wales.

SNOOPY

[greater fool]

Another opportunity to add stores?

https://www.cnbc.com/2020/08/17/pizza-hut-to-close-up-to-300-locations-operated-by-bankrupt-franchisee.html

[Snoopy]

We haven't heard much progress on the Restaurant Brand's deal to buy 70 KFC restaurants in California and I am wondering if it is time to end this trans pacific foray.

All dining on KFC premises in mainland USA (and that includes California) has stopped. I would think that is very material to RBD's Californian acquisition proposal. If the deal hasn't been called off, I would suggest there are now strong grounds for a renegotiation on price. If RBD can't get a discount on those Californian restaurants, I would suggest their capital is better spent revamping their Hawaiian operation, and perhaps re-energizing their plans to pick up another swag of KFC restaurants in New South Wales.


News released today that the Californian deal is going ahead, with no mention of a price renegotiation.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/RBD/358995/329793.pdf

The following is an article on how YUM Brands, the master franchise holder for KFC, has navigated Covid-19

https://www.qsrmagazine.com/restaurant-operations/strength-numbers

YUM closed down many restaurants during the second quarter of the year., but it looks like the tide has turned:

"Restaurants started reopening in May, and as of June, closures were down to half what they were at their peak. Today, closures have slid to fewer than 2,500 units, meaning Yum is back to 95 percent coverage."

Time will now tell if RBD has overspent to establish its Californian foothold.

SNOOPY

[peat]

no interim dividend for the 31 December 2020 financial


year.





Directors have also considered the future of the existing Dividend


Reinvestment Plan and, given the constraints upon the majority shareholder in


participation and the limited likelihood of dividends in the immediate


future, they have elected to terminate the Dividend Reinvestment Plan with


immediate effect.

[dreamcatcher]

Becoming junk stock 42 trades for 567 shares & 24c movement

[artemis]

The other brands joining CarlsJr on Uber Eats. Just a trial so far for the additions.

https://www.scoop.co.nz/stories/BU2010/S00107/kfc-pizza-hut-and-taco-bell-to-take-part-in-uber-eats-trial-in-new-zealand.htm

[winner69]

Hey Snoops ...did you see this piece on our Russel

Don’t even bother do much analysis on RBD these days because no matter they do the share price keeps defying logic and keeps climbing. Weird as profit climbs rather slowly it’s PE goes up even faster.

You wouldn’t really call their profit trend really startling would you.

Still got most of the ones I bought around a buck many years ago. Something made me have a ‘never sell’ mentality and that’s worked out fine eh. Funny I’ve never seen it as a buy since but who cares as it’s been very rewarding anyway.

Still love the fact you make more out of investing in greasy chicken than retirement villages ...should have been totally committed to greasy chicken.

I take it you still have heaps

https://www.nzherald.co.nz/business/business-hub-restaurant-brands-colonel-russel-creedys-ambitions-to-treble-fast-food-footprint-to-1000-stores/RTJVEVGIPGDMSYXTFZLKC4MJ2A/

[Snoopy]

Hey Snoops ...did you see this piece on our Russel

Don’t even bother do much analysis on RBD these days because no matter they do the share price keeps defying logic and keeps climbing. Weird as profit climbs rather slowly it’s PE goes up even faster.

You wouldn’t really call their profit trend really startling would you.

Still got most of the ones I bought around a buck many years ago. Something made me have a ‘never sell’ mentality and that’s worked out fine eh. Funny I’ve never seen it as a buy since but who cares as it’s been very rewarding anyway.

Still love the fact you make more out of investing in greasy chicken than retirement villages ...should have been totally committed to greasy chicken.

I take it you still have heaps


Looking back I shouldn't have sold most of my shares to the Mexican's Winner! Sounds like you ended up resisting and it has paid off for you. Still I am not jealous for, as you say, RBD has been overvalued ever since and I can't really complain about the mid $9 range price I got for the bulk of my holding. It was a good price by any conventional valuation metrics, and if someone did better than me out of the deal then good on them. Yes I still have my residual shares although residual might be the wrong adjective as it might leave the wrong impression. The truth is my portfolio got re-rated from something grossly overstocked with RBD shares to something more balanced.

That picture of Russel is a bit spooky though. I wondered what Russel's brother was doing in the background of the photo until I realised I was looking at a fibreglass recreation of 'the colonel'. The glasses, the skin colour, the general build - it is almost uncanny. Even Russel's hair is getting a bit of the colonel's colour blended in. All Russel needs is that bit of beard between his mouth and chin and the transformation would be complete. I reckon the name 'Colonel Creedy' has a nice ring to it too!

SNOOPY

[ratkin]

Thoughts on the sales update?

[Snoopy]

'Restaurant Brands' (RBD) are now 75% owned by 'Finaccess Capital' (stake acquired in April 2019) headquartered in Mexico. 'Finaccess Capital' was created from money received by the Fernandez family (Carlos Fernandez is now on the RBD board) from the buyout of Mexico's 'Grupo Modulo', a beer market giant that was gobbled up by an even bigger beer fish 'Anheuser Busch', the world's biggest brewing company. 'Finaccess Capital' has a strong presence in the casual dining and quick service restaurant sector. It currently holds a 67% stake in 'Amrest Holdings BV', a similarly (from YUM Brands) franchised fast food company in Europe that is listed on the Polish Stock Exchange. Nevertheless, the intention is to maintain operational separation between 'Restaurant Brands' and 'Amrest'.

'Restaurant Brands' might now be better named as 'YUM Pacific'. YUM Brands is the master franchise holder of the 'KFC' , 'Pizza Hut' and 'Taco Bell' brands globally. 'Restaurant Brands' operates franchised YUM branded restaurants and is looking to add their own unique restaurant designs and menu adaptations and local promotions. This tailors the offering to meet the expectations of consumers around the Pacific Rim: New Zealand, Australia, Hawaii, Guam and now California. In California, a conditional deal is in place to acquire 70 both 'pure KFC' and 'KFC/Taco Bell paired' restaurants. 'Restaurant Brands', aside from being a Pacific Regional YUM Franchise, operate 18 'Carl's Junior' Burger themed restaurants in NZ. But they are not rolling out any more 'Carls Junior Restaurants'. And the niche chain of 'Starbucks' coffee houses that 'Restaurant Brands' used to run in NZ has been sold.

'Restaurant Brands' are already the largest KFC franchise operator in New Zealand and New South Wales in Australia. Likewise they have a strong position in greater Hawaii with 'Taco Bell' and 'Pizza Hut'. 'Pizza Hut' in NZ continues to be under profitability pressure (most outlets are now independently franchised and more independent franchising is planned) even if it remains the second largest Pizza operator by footprint (now 102 NZ stores). The are 439 KFC stores in California

https://leadsdeposit.com/list-of-all-kfc-locations-in-the-us/

and 'Restaurant Brands' are looking to own 70 of those. It is RBD's intention to strengthen their position in California and Australia over time, both buying existing stores and opening new ones. Interestingly, new RBD Chairman Jose Pares sees California as 'relatively underpenetrated' by KFC' (AR2019(2) p26).

The position of 'Carl's Junior' in The NZ environment is of a 'niche payer'. It would not surprise me, now that RBD is seeing 'Taco Bell' as the prime development goal for building new restaurants in Australia and NZ (60 stores over the next 5 years), to see 'Carl's Junior' sold off much as 'Starbucks' was last year.

The company mission goal now is the 'big dollar target', chasing $1billion in annual revenue (annualised revenue is already at $867.1m ( AR2019(2) p6 ). To reach this goal dividends have ceased and the earnings generated from the business is being reinvested. But will this single minded growth goal see the balance sheet stretched too far in a post Coivid-19 world where debts remain but revenue to service those debts becomes less certain?

Conclusion: In answer to 'Buffett Test 1', PASS TEST (as regards being a major market player). RBD are very significant players with 'KFC'/'Pizza Hut' in NZ,' KF'C' in New South Wales and 'Taco Bell' and 'Pizza Hut' in Hawaii. 'KFC' in California and 'Taco Bell' in Australia and N.Z. are developing market positions and are likely to form the bulk of future growth plans.


Restaurant Brands are a 'favoured' franchise operator for KFC, Pizza Hutt and Taco Bell, concepts owned by ultimate franchise owner USA based 'YUM Brands'. Restaurant Brands has a clear 'base position' in four Pacific Rim markets: New Zealand, East Coast Australia, Hawaii and California USA. They are dominant players in takeaway chicken market in New Zealand and New South Wales. They are strong players in the Pizza market in New Zealand and Hawaii. They are emerging players in the Mexican food market in NZ and NSW as 'Taco Bell' plans to roll out a total of 60 restaurants in these two markets. They are relatively weak players in the burger market in NZ, with Carls Junior well behind competitor international operators like 'Burger King' and 'McDonalds'.

Slide 24 of AP2020 reveals a new emphasis going forwards. With 69 Southern Californian KFC restaurants now in the fold, 'YUM Pacific' as I call Restaurant Brands these days, now have more than half their operations outside of New Zealand. The global 'base footprint' is complete. And what seemed like a fanciful goal stated in FY2018, to become a billion dollar sales organisation ($740.8m over FY2018), is looking inevitable ($892m achieved during Covid-19 affected FY2020).

KFC development will now focus on 'new builds' and 'acquisition of existing small franchisees'. 'Acquisition of existing small franchisees' was not mentioned in the context of New Zealand, because RBD has largely already gobbled up such opportunities (although KFC Kapiti was acquired this year). It wasn't mentioned in the context of Hawaii either. The KFC franchise holder there is privately owned 'Kazi Foods Corp of Hawaii' (founded 1998). There are 15 KFC franchises in Hawaii run by 'Kazi Foods'. So I was very surprised to learn that RBD plans to open their own first KFC store in Hawaii by 2022. The parent franchise owner 'YUM Brands' must have approved this, and that has to be a slap in the face for existing KFC franchisee Kazi Foods. KFC in Hawaii is a developing situation that is worth watching.

The upgrade of Pizza Hutt continues with the downgrade of 'large footprint restaurants' to 'delco delivery outlets'. This is something that has already happened in NZ but is a change that now seems to be sweeping Hawaii. As a slap in the face for RBD's New Zealand Pizza Hutt workers, there are now only 13 company owned stores left (the balance of 90 stores are now in the hands of independent franchisees). RBD still benefits from the independent franchisees as the YUM approved wholesale supplier for proprietary Pizza Hutt goods.

The 'Taco Bell' brand is still being developed in New Zealand and Australia, with no plans to expand this format from RBD's existing bases in Hawaii and California. This strikes me as a warning sign that the Australasian expansion is being done at the behest of master franchise holder YUM, and may not be profitable for RBD. It will be profitable for YUM though, because they get paid a franchise fee based on restaurant turnover, irrespective of whether RBD makes profits out of these stores or not.

Finally 'Carl's Junior' restaurants, the only non-Yum aligned restaurant brand, are back on the new build list in NZ, but only in smaller store formats. This is possibly on the increasing importance of delivery sales to the fortunes of Carl's Junior. Delivery sales do not require a lease on an expensive sprawling restaurant.

Restaurant Brands strong KFC position in New Zealand and New South Wales, well traded Pizza Hutt operation in NZ and Hawaii, and the strength of Taco Bell in Hawaii earns a strong 'Yes' when answering the question: Do you hold strong market positions. The not so strong market positions, Taco Bell in Australia and NZ and Carl's Junior in NZ can be thought of as 'growth beachheads' that are currently not material to the overall Restaurant Brands operation.

Conclusion: Yes, PASS TEST

SNOOPY

[Snoopy]

I have used the net profit after tax, excluding non-trading items for the purpose of this comparison. Non trading items include those associated with store closures and sales transformation costs and insurance payments. These are omitted because they obscure how the business is performing on the ground.

Net Profit/No.of Shares

2016: $24.207m /102.871m = 23.5cps
2017: $30.567m /122.843m = 24.9cps
2018: $40.361m /123.629m = 32.7cps
2019(1): $42.181m /124.759m = 33.8cps
2019(2): $45.7m /124.759m = 36.6cps


Conclusion: PASS TEST


I have used the net profit after tax, excluding non-trading items for the purpose of this comparison. Non trading items include those associated with store closures and sales transformation costs and insurance payments. These are omitted because they obscure how the business is performing on the ground.

Net Profit/No.of Shares

2017: $30.567m /122.843m = 24.9cps
2018: $40.361m /123.629m = 32.7cps
2019(1): $42.181m /124.759m = 33.8cps
2019(2) (a): $45.7m /124.759m = 36.6cps
2020 (b): $49.8m /124.759m = 39.9cps

Notes

(a) Net Profit of $30.1m normalised as per AR2019 p16. Added back unaudited earnings for the two months of January 2019 and February 2019 to make a twelve month earning period (+$7.1m). Added back the net effect of adjusting to the new lease standard IFRS16 (+$4.5m), and removed a net +$2.50m of after tax losses unrelated to normal trading.

$30.1m + $4.5m +$4.0m +$7.1m = $45.7m

(b) Net Profit of $30.9m normalised (from Annual Profit Release 2020 p2). Added back the net effect of adjusting to the new lease standard IFRS16 (+$7.0m), and added back a net +$8.8m of higher net expenses outside of normal trading. This includes $4.1m of incremental NZ Lock-down costs including a wage subsidy shortfall payout of $0.5m per week), and $4.3m in acquisition costs relating to the 69 restaurants purchased in California. This year contains four months of operations from the Californian restaurant acquisition:

$30.9m + $7.0m + $8.8m + 0.72($4.3m) = $49.8m

Finally the profit contains a one off NZ government payment of $22.013m, the NZ government Covid-19 wage subsidy. The company was eligible for this on account of the government mandated closing of all New Zealand stores from 26th March 2020 to 27th April 2020, as part of the Covid-19 Level 4 lockdown. The government payment fell short of covering all NZ wages by $0.5m per week (around $2.5m in total).

Conclusion: PASS TEST

SNOOPY

[Rawz]

Reataurant Brands are a 'favoured' franchise operator for KFC, Pizza Hutt and Taco Bell, concepts owned by ultimate franchise owner USA based 'YUM Brands'. Restaurant Brands has a clear 'base position' in four Pacific Rim markets: New Zealand, East Coast Australia, Hawaii and California USA. ...

Restaurant Brands strong KFC position in New Zealand and New South Wales, well traded Pizza Hutt operation in NZ and Hawaii, and the strength of Taco Bell in Hawaii earns a strong 'Yes' when answering the question: Do you hold strong market positions. The not so strong market positions, Taco Bell in Australia and NZ and Carl's Junior in NZ can be thought of as 'growth beachheads' that are currently not material to the overall Restaurant Brands operation.

Conclusion: Yes

SNOOPY

Thank you for your posts, I enjoyed reading them and share your yes conclusion.

RBD is Mr dependable in my book.

[Snoopy]

Net Profit excl. non trading / Shareholder Equity EOFY

2016: $24.207m / $75.617m = 32.3%
2017: $30.567m / $192.059m = 15.9%
2018: $40.361m / $201.608m = 20.0%
2019(1): $42.181m / $224.670m = 18.8%
2019(2): $45.7m / $207.994m = 22.0%

Conclusion: PASS TEST


Net Profit excl. non trading / Shareholder Equity EOFY

2017: $30.567m / $192.059m = 15.9%
2018: $40.361m / $201.608m = 20.0%
2019(1): $42.181m / $224.670m = 18.8%
2019(2): $45.7m / $207.994m = 22.0%
2020: $49.8m / $230.472m = 21.6%

Conclusion: PASS TEST

SNOOPY

[Snoopy]

Here is the reason I was getting all 'hot and bothered' about calculating an annualised revenue figure in my post 2622 on this thread.

'Margins' in this context means 'Net Profit Margins'. This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective, I am now including 'other revenue' as part of the representative on-going revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be on-going

2016: $24.207m / $404.095m = 6.0%
2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%
2019(1): $42.181m / $824.9m = 5.1%
2019(2): $45.7m / $867.1m = 5.3%

The profit margin hasn't got any worse, which is a positive. But it hasn't really got any better either. I call it 'bouncing around a new bottom'. Our Russel has continued his object lesson in how to reduce net profit margins. Growth in revenue is all very well. But if you are not increasing your profit as a percentage of revenue, and you have to employ new equity to create your growth, 'long term' this can be a formula for standing still on an earnings per share basis.

Conclusion: FAIL TEST


'Margins' in this context means 'Net Profit Margins'. This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective, I am now including 'other revenue' as part of the representative on-going revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be on-going

2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%
2019(1): $42.181m / $824.9m = 5.1%
2019(2) (a): $45.7m / $867.1m = 5.3%
2020: $49.8 / $924.778m = 5.4%

Notes

(a) Revenue annualised in my post 2622

The profit margin is still below FY2017, when the US based expansion started. Our Russel has continued his object lesson in how to reduce net profit margins. Growth in revenue is all very well. But if you are not increasing your profit as a percentage of revenue, and you have to employ new equity to create your growth, 'long term' this can be a formula for standing still on an earnings per share basis.

Conclusion: FAIL TEST

SNOOPY

[Snoopy]

Another year into the 'great overseas expansion'. To reprise what it was (and is), here is how the RBD 'overseas managed restaurant landscape' has changed since EOFY2016 (28-02-2016) so far:

27-04-2016: QSR Pty Ltd, operating 42 KFC Restaurants in New South Wales acquired.
13-12-2016: 2 KFC stores in New South Wales acquired from Samesa Pty Limited.
13-12-2016: 3 KFC stores in New South Wales acquired from Oshamma Pty Limited.
07-03-2017: Pacific Island Restaurants 'PIR', now 37 Pizza Hut and 37 Taco Bell stores acquired.
17-07-2017: 3 KFC stores in New South Wales acquired from Vida Rica Pty Limited.
28-08-2017: 10 KFC stores in New South Wales acquired from YUM Restaurants International

In addition to these purchases one incremental KFC store was opened in Q3 FY2018 and a second in Q4 FY2019(2). A further KFC store was acquired in December 2019. Very recently a couple of Taco Bell Restaurants have opened in NSW too, but these are not material to the overseas strategy yet.

From the Buffettology Workbook, p149

"We take the per share amount of earnings retained by a business for a certain period of time then compare it to any increase in per share earnings that occurred during the same period"

In this instance the 'per share earnings retained' has been supplemented by a whole lot of new capital raised with the October 2016 cash issue PLUS the fact that no dividends have been paid by RBD since June 2018.. Those unpaid dividends become retained earnings that can then be spent on new restaurant initiatives. I will use the change in shareholders equity from the reporting date before the cash issue (EOFY2016) to the end of FY2019(2). This is the first year that all of the Australian operations and Hawaiian operations have been operating as 'bedded in units'.



EOFY2016Change]EOFY2019(2) (Annualised)


Normalised Earnings {A}$24.207m]$45.7m


No. of Shares {B}102.871m]124.758m


eps {A}/{B}23.53c+10.28c {D}]36.6c


Owner Equity {C}$75.617m]$207.994m


Owner Equity per share {C}/{B}74c+$0.93 {E}]$1.67


Return on Incremental Equity / Share {D}/{E}+11.0%]



The 'overseas expansion period' now covers four years. The above result is a significant improvement on the "Return on Incremental Equity / Share" over the previous two compounded periods (9.5% over two years and 9.7% over three years respectively). Is this proof that the overseas expansion strategy is working? All the new capital raised in the cash issue in October 2016 and those retained dividends has now had sufficient time to be deployed. But much of this business expansion funding is by debt. Using debt will improve the 'Return on Incremental Equity' / 'Share' figure. There is nothing wrong with using debt for expansion of course, provided the debt load does not become excessive. We need to investigate whether excessive debt is being used!


Another year into the 'great overseas expansion'. To reprise what it was (and is), here is how the RBD 'overseas managed restaurant landscape' has changed since EOFY2016 (28-02-2016) so far:

27-04-2016: QSR Pty Ltd, operating 42 KFC Restaurants in New South Wales acquired.
13-12-2016: 2 KFC stores in New South Wales acquired from Samesa Pty Limited.
13-12-2016: 3 KFC stores in New South Wales acquired from Oshamma Pty Limited.
07-03-2017: Pacific Island Restaurants 'PIR', now 37 Pizza Hut and 37 Taco Bell stores acquired in Hawaii USA.
17-07-2017: 3 KFC stores in New South Wales acquired from Vida Rica Pty Limited.
28-08-2017: 10 KFC stores in New South Wales acquired from YUM Restaurants International

In addition to these purchases one incremental KFC store was opened in Q3 FY2018 and a second in Q4 FY2019(2). A further KFC store was acquired in December 2019. Very recently a couple of Taco Bell Restaurants have opened in NSW too, but these are not material to the overseas strategy yet.

24-10-2018: Sale of Starbucks franchised 22 stores to Tahua Capital for $4m.
23-12-2019: 70 KFC (including 11 combined KFC /Taco Bell) stores acquired in Southern California USA from 'Great American Chicken Corp' (acquisition completed September 2020)

Now back to some analysis. From the Buffettology Workbook, p149

"We take the per share amount of earnings retained by a business for a certain period of time then compare it to any increase in per share earnings that occurred during the same period"

In this instance the 'per share earnings retained' has been supplemented by a whole lot of new capital raised with the October 2016 cash issue PLUS the fact that no dividends have been paid by RBD since June 2018.. Those unpaid dividends become retained earnings that can then be spent on new restaurant initiatives. I will use the change in shareholders equity from the reporting date before the cash issue (EOFY2016) to the end of FY2020. I note that the Californian market acquisition only contributed 4 months of earnings towards the FY2020 year as a consequence of the acquisition date of those restaurants.



EOFY2016Change]EOFY2020


Normalised Earnings {A}$24.207m]$49.8m


No. of Shares {B}102.871m]124.758m


eps {A}/{B}23.5c+16.4c {D}]39.9c


Owner Equity {C}$75.617m]$230.472m


Owner Equity per share {C}/{B}74c+$1.11 {E}]$1.85


Return on Incremental Equity / Share {D}/{E}+14.8%]



The 'overseas expansion period' now covers five years. The above result is a significant improvement on the "Return on Incremental Equity / Share" over the previous three compounded periods (9.5% over two years and 9.7% over three years and 11.0% over four years respectively). Is this proof that the overseas expansion strategy is working? All the new capital raised in the cash issue in October 2016 and those retained dividends has now had sufficient time to be deployed. But much of this business expansion funding is by debt. Using debt will improve the 'Return on Incremental Equity' / 'Share' figure. There is nothing wrong with using debt for expansion of course, provided the debt load does not become excessive. We need to investigate whether excessive debt is being used!

SNOOPY

[Snoopy]

In the fast food industry accounts are normally paid 'on time' and 'in cash'. Furthermore stock turnover is rapid. This enables a fast food business to carry more debt than other retail businesses as cashflow is better. But how much debt is too much debt? Now that RBD has become a 'growth company' and dividends have been suspended, this is a question we shareholders should consider.

My favourite debt measure remains 'MDRT'. Put simply, MDRT is the answer to the question: "If all earnings after tax were poured back into repaying the company's bank debt, how long would that take?" When working out this, we must use a company's declared IFRS profit, not a normalised profit. It takes actual cash to repay a bill!



FY2015FY2016FY2017FY2018
FY2019(1)FY2019(2)


Bank Term Debt$12.675m$22.550m$46.482m$166.815m
$145.853m$154.326m


less Cash and Cash Equivalents($1.575m)($1.093m)($70.390m)($10.410m)
($15.034m)($34.965m)


equals Net Debt {A}$11.100m$21.457mNM$156.405m
$130.819m$119.361m


Declared NPAT {B}$23.830m$24.070m$25.595m$35.466m
$35.741m$36.650m (a)


MDRT {A}/{B}0.5 yrs0.9 yrs0 years4.4 yrs
3.7 yrs3.3 yrs



(a) $30.542m X (12/10) = $36.650m (Declared profit of $30.542m is for a ten month period)

The anomaly in the table was the large amount of cash carried on the balance sheet at EOFY2017. That cash was raised for the Hawaiian settlement that was still pending at balance date. $94 of this cash was raised through the share offer dated 26th October 2016 via a 1: 5.15 cash issue. If we remove that cash from the balance sheet we can get a more representative MDRT figure:

$70.092m / $25.595m = 2.7 yrs

2017 was also the year that RBD announced their change of direction to become a 'global' rather than a 'solely New Zealand based operator' of restaurants. Underlying EPS has risen from 24.9cps to 36.6cps from EOFY2016 to EOFY2019(2) over the almost four years since. But net debt has ballooned as well.

My rule of thumb for the MDRT answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

So no concerns from me with the debt at EOFY2019(2) levels. But RBD has announced a subsequent acquisition.

http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/RBD/346496/314595.pdf

"The transaction (to purchase 70 Californian restaurants) is for a purchase price of $US73 million plus capital expenditure reimbursements for recent store refurbishment and customary working capital adjustments. It will be fully debt funded."

I think that translates to about $NZ100m of new debt. Profits at EBITDA level are listed as $US12m+ ($NZ19m+). That is a similar level of historical profitability as RBD's "KFC Australia" investment. Yet given the much reduced profits from Covid-19 flow on effects over FY2020, we may yet see RBD net profits down for the year by 20%. And that means a projected MDRT figure for FY2020 of something like this:

$219.361m / (0.8 x $36.650m) = 7.5

I would call that a worry. But major shareholder 'Finaccess' might say it is 'efficiently maxing out debt covenants'. I will leave you, the investor, to choose the interpretation that you are most comfortable with!


In the fast food industry accounts are normally paid 'on time' and 'in cash'. Furthermore stock turnover is rapid. This enables a fast food business to carry more debt than other retail businesses as cashflow is better. But how much debt is too much debt? Now that RBD has become a 'growth company' and dividends have been suspended, this is a question we shareholders should consider.

My favourite debt measure remains 'MDRT'. Put simply, MDRT is the answer to the question: "If all earnings after tax were poured back into repaying the company's bank debt, how long would that take?" When working out this, we must use a company's declared IFRS profit, not a normalised profit. It takes actual cash to repay a bill!



FY2017FY2018
FY2019(1)FY2019(2)FY2020


Bank Term Debt
$46.482m$166.815m
$145.853m$154.326m]
$236.398m


less Cash and Cash Equivalents
($70.390m) (i)($10.410m)
($15.034m)($34.965m)]
($35.666m)


equals Net Debt {A}
NM$156.405m
$130.819m$119.361m]
$200.732m



Declared NPAT {B}
$25.595m$35.466m
$35.741m$41.7m (ii)]
$37.942m (iii)


MDRT {A}/{B}
0 years4.4 yrs
3.7 yrs
2.9 yrs5.3 yrs



Notes

(i) There is large amount of cash carried on the balance sheet at EOFY2017. That cash was raised for the Hawaiian settlement that was still pending at balance date. $94m of this cash was raised through the share offer dated 26th October 2016 via a 1: 5.15 cash issue. If we remove that cash from the balance sheet we can get a more representative MDRT figure:

$70.092m / $25.595m = 2.7 yrs

(ii) $30.1m+$4.5m+$7.1m = $41.7m (From p16 AR2019(2) adjusting for IFRS 16 interest payments and annualizing 10 month year)

(iii) $30,938m+($9.741m-$2.737m) = $37.942m (From Note 1.1 FY2020 Accounts adjusting for IFRS 16 interest payments)





2017 was also the year that RBD announced their change of direction to become a 'global' rather than a 'solely New Zealand based operator' of restaurants. Underlying EPS has risen from 24.9cps to 39.9cps from EOFY2017 to EOFY2020 over the ensuing four years. But net debt has ballooned as well.

My rule of thumb for the MDRT answer in years is:

years < 2: Company has low debt
2< years <5: Company has medium debt
5< years <10: Company has high debt
years >10: Company debt is cause for concern

According to those rules RBD is now a high debt company. But the debt levels are not as high as I predicted last year. Despite Covid-19, this points to the underlying assets of the company performing well. Indeed the directors report says:

"The financial results for the California division have been significantly above expectations."

Factor in a full twelve months earnings contribution from California and (hopefully) less Covid-19 interruptions over FY2021 and I think RBD will drop down to being a 'medium debt' company. With not insignificant debt, the well signalled expansion of Taco Bell in Australia and New Zealand to more than 60 restaurants, other incremental growth and a well planned refurbishment program for existing restaurants, I would not be expecting any dividends from my RBD shares going forwards.

SNOOPY

[Snoopy]

We can't use the 'Capitalised Dividend Valuation Model' to value RBD any more, because dividends have been cancelled. Yet the company doesn't tick all the boxes to allow a Buffett style growth valuation model to be used either. So what to do? It looks like I will be forced to use an earnings valuation multiple based on EBIT and/or EBITDA. Grant Samuel did this when valuing RBD for the 'Finacces's takeover.

The problem here is that, due to the adoption of NZ IFRS 16, the calculation of both EBIT and EBITDA has changed. From AR2019(2) p80:



Pre NZ IFRS 16AdjustmentsPost NZ IFRS 16


EBITDA before G&A Expenses$115.974m$31.511m$147.485m


General & Administration Expenses($29.427m)$0.857m (2)($28.570m)


EBITDA after G&A Expenses$86.547m$32.368m$118.915m


less Depreciation($25.356m)($22.395m) (1)($47.751m)


less Amortistion($2.178m)$0m($2.178m)


equals EBIT before Other Items$59.013m$9.973m$68.986m



Notes

(1) This adjustment figure is the 'lease depreciation', which did not exist as a separate depreciating item under the superseded accounting standard.

This makes things difficult when using historical EBIT and EBITDA multiples as benchmarks. However, in this case the authors of the annual report have bridged the 'old' and the 'new' way of looking at things. Refer to AR2019(2) sections 1.1, 14,15,16,17,18 and 19.

(2) Why the general and administrative expenses have dropped under NZ IFRS16 is not explained. My guess is that 'head office', not being part of the 'earnings machine', operated under the old NZ IAS 17, on a separate 'finance lease' arrangement. With the adoption of NZ IFRS16, and the distinction between finance leases (that were on the balance sheet), and operating leases (which up to that point were not on the balance sheet) was removed. At that point the former 'finance lease' at head office was reclassified as an 'operating lease'. That replaced what was an 'expense item' with a 'depreciation item', that 'on paper' reduced the General & Administration running costs. In reality these costs were transferred to an alternative deduction in the accounts. I don't know if I am right about this. But it seems the most logical way to explain what has happened..

So we can carry on using historical comparative ratios, provided we use EBIT and EBITDA figures calculated under the 'old standard'. Let's begin!





I can't use the 'Capitalised Dividend Valuation Model' to value RBD any more, because dividends have been cancelled. Yet the company doesn't tick all the boxes to allow a Buffett style growth valuation model to be used either. So what to do? It looks like I will be forced to use an earnings valuation multiple based on EBIT and/or EBITDA. Grant Samuel did this when valuing RBD for the 'Finacces's takeover.

The problem here is that, due to the adoption of NZ IFRS 16, the calculation of both EBIT and EBITDA has changed. Unlike the previoushttps://talkmotorsport.co.nz/ year where this work was done for us (AR2019(2) p80), I have to go through the accounts 'line by line' to derive pre IFRS 16 EBIT and EBITDA figures. This I have dome to compile the table below.



Pre NZ IFRS 16AdjustmentsPost NZ IFRS 16Method or Reference


NZ Govt Wage Subsidy$22.013m$0m$22.013m
Accounts 2020 Note 1 / Calculated / Accounts 2020 Note 1

- [/
EBITDA before G&A Expenses$126.250m$43.907m$170.157m
Accounts 2020 Note 1 / Calculated 2nd / Calculated


General & Administration Expenses($41.478m)$1.012m (1)($40.466m)[/https://talkmotorsport.co.nz/TD]
[TD=align:center]Accounts 2020 Note 1 / This Post Note 1 / Calculated


EBITDA after G&A Expenses$106.785m$44.919m$151.704m
Calculated / Calculated 3rd / Calculated 2nd


less Depreciation($34.087m)($30.908m) (2)($64.995m)
Accounts 2020 Note 1 / Accounts 2020 Note 14 / Calculated


less Amortistion($2.740m)$0m($2.740m)
Accounts 2020 Note 1 / Calculated / Accounts 2020 Note 1


equals EBIT before Other Items$69.958m$14.011m$83https://talkmotorsport.co.nz/.969m
Calculated / Calculated 2nd /Accounts 2020 Consolidated Income + Other Expenses & Income



Notes

(1) IFRS 16 is a way to make 'operating leases' visible on the balance sheet and introduces the concept of a 'right of use asset', offset on the balance sheet by a corresponding 'lease liability'. Thus from now on 'operating leases' will become more than just a one line expense each year. In place of the one line expense, a 'right of use asset' is reduced in size as the accompanying 'lease liability' shrinks in proportion. The shrinking 'lease liability' is manifested as an 'interest expense' on lease liabilities.

Why the 'General and Administrative expenses' at RBD have dropped under NZ IFRS16 is not explained. My guess is that 'head office', being a separate location and not being part of the 'earnings machine', operated under the old NZ IAS 17, on a separate and distinct 'operating lease' arrangement. With the adoption of NZ IFRS16, the distinction between 'finance leases' (that were on the balance sheet), and 'operating leases' (which up to that point were not on the balance sheet) was effectively removed. That replaced what was an 'expense item' with a 'depreciation item', that 'on paper' reduced the General & Administration running costs. In reality these costs were transferred to an alternative deduction in the accounts. I don't know if I am right about this. But it seems a logical way to explain what has happened..

"Each lease payment is allocated between the lease liability and the finance cost. The finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period." (AC2020 Note 14).

I could not find a specific finance cost for leases associated with 'General & Administration" for FY2020. However given the quote above. And given we know the figure for the previous year (actually a 44 week period) (AR2019(2) p80). That means we can guess this rate will be the same for FY2021, provided it is normalised to a 52 week charge.

$0.857m x 44/52 = $1.012m

(2) This adjustment figure is the 'lease depreciation', which did not exist as a separate depreciating item under the superseded accounting standard (AC2020 Note 14).


Table completed, we can carry on using historical comparative ratios, provided we use EBIT and EBITDA figures calculated under the 'old standard'. Let's begin!

SNOOPY

[Snoopy]

Table completed, we can carry on using historical comparative ratios, provided we use EBIT and EBITDA figures calculated under the 'old standard'. Let's begin!


The following valuation is based on historical earnings as listed in the FY2020 annual accounts that covered the twelve month period, included Covid-19 lock-downs, ended 31-12-2020. Generally you would try to value a company on forecast earnings. However, due to Covid-19, no future guidance has been issued by the RBD board RBD received a wage subsidy for restaurants closed during periods of Covid-19 lock down in New Zealand. In Hawaii they received a Covid-19 loan which may be forgiven. If this loan is forgiven it will be listed as extra income for the FY2021 year. No other governmental assistance was received.

It is common to value a company based on 'enterprise value'. This reflects the fact that anyone acquiring a company for the purposes of control will have to pay the market value for the shares (a positive asset) and take on the book value of the balance sheet value of the net debt (a negative asset).

Enterprise Value = Market Capitalisation +Total Debt − Cash

In this instance the 'Enterprise Value market factor' is determined by historical earnings multiples that the market has determined it would be willing to pay for similar companies. This information can be found in the 'Target Company Statement' as commissioned by 'Restaurant Brands' in response the 'Finaccess' offer to buy a controlling stake in RBD in early 2019.



Historical EBITDAHistorical EBITReference


As Calculated {A}$106.785m$69.958m My post 2650


Market Multiple {B}10.918RBD Commissioned Independent Advisors Report p32


Net Bank Debt @ 31-12-2020: (Total Bank Debt - Cash) {C}$200.732m$200.732mAC2020 'Balance Sheet'


Enterprise Value @ 31-12-2020: {A} x {B} - {C}$963.225m$1058.512m


No. of Shares on Issue@ 31-12-2020 124.759m$124.759m


Enterprise Value 'per share'$7.72$8.48



The share price closed at $12.45 on 10-03-2021 You could argue that since Covid-19 there has been a 'flight to safety' and those companies supplying staples (like food) have been re-rated. You could also argue that lower market interest rates have themselves pushed share valuations higher. However the premium that the market is pricing into these shares does seem very significant (between 47% and 61%). Good as this company is, it looks to me to be too highly priced to reflect any type of historical norm fair value. The new Californian arm is operating ahead of projections but has come with large new borrowings that has depressed RBD's enterprise value. Consequently I would continue to suggest new investors avoid putting money into RBD at these prices.

SNOOPY

discl: who nevertheless intends holding onto my own residual 'post controlling takeover' shareholding!

[Snoopy]

'
Restaurant Brands' (RBD) are now 75% owned by 'Finaccess Capital' (stake acquired in April 2019) headquartered in Mexico. 'Finaccess Capital' was created from money received by the Fernandez family (Carlos Fernandez is now on the RBD board) from the buyout of Mexico's 'Grupo Modulo', a beer market giant that was gobbled up by an even bigger beer fish 'Anheuser Busch', the world's biggest brewing company. 'Finaccess Capital' has a strong presence in the casual dining and quick service restaurant sector. It currently holds a 67% stake in 'Amrest Holdings BV', a similarly (from YUM Brands) franchised fast food company in Europe that is listed on the Polish Stock Exchange. Nevertheless, the intention is to maintain operational separation between 'Restaurant Brands' and 'Amrest'.


RBD have appointed a new director on the board who is based in Europe!

https://www.nzx.com/announcements/367392

That will make 'zoom' board meetings interesting as Mexico , New Zealand and Spain are in very different time zones. It might be a 'zzzzzzzzzzoom' meeting for some. I was also very disappointed to see the AGM will again be a virtual meeting this year,

Notwithstanding all the above, Maria Elena (Malena) Pato-Castel does look like a good appointment. I have copied her bibliographical details from the Amrest website, in expectation they will be removed from there because she has retired

-----------

Malena Pato-Castel
Owned Brands President

Mrs Malena Pato-Castel graduated in Business Administration Degree (ICADE E2) with post graduate Marketing studies. She started her professional career 30 years ago. Long experience in different local and multinational companies and diverse environments endorsed her adaptability to different business management styles and cultures. She has worked in Fast Moving Consumer Goods and Hospitality industry in leading companies such as Hachette, Unilever, Yum! and AmRest. She held responsibility for different cultural settings such as Israel, Turkey, Spain and Portugal, and different business areas: Marketing, Sales, Human Resources, General Management.

She was a Board member of the company which operated Pizza Hut and KFC brands in Spain, member of KFC Brand Council of Europe and worked as industry representative for different National Environmental projects. Co-Founder and Managing Director of Kenchic (latter Restauravia) – the company that in 2004 owned 14 KFC restaurants and till 2010 expanded to close to 100 units through organic growth and the acquisition of La Tagliatella. Following the acquisition of Restauravia by AmRest in 2011 she was appointed as Division President, and latter Owned Brands (La Tagliatella and Blue Frog) President.

------------

"La Tagliatella" is an Italian food dine in restaurant chain. Maybe this will be an additional arm with which to expand the 'Restaurant Brands' brand family in the future? 'Operational separation' between Restaurant Brands and Amrest (as per my quoted text above) does not preclude pooling ideas at the conceptual level.

SNOOPY

[Snoopy]

Slide 24 of AP2020 reveals a new emphasis going forwards. With 69 Southern Californian KFC restaurants now in the fold, 'YUM Pacific' as I call Restaurant Brands these days, now have more than half their operations outside of New Zealand. The global 'base footprint' is complete. And what seemed like a fanciful goal stated in FY2018, to become a billion dollar sales organisation ($740.8m over FY2018), is looking inevitable ($892m achieved during Covid-19 affected FY2020).


I have recently published a post (this thread no.2651) suggesting that RBD, on historical multiples is significantly overvalued. However, these FY2020 results were earned under the difficult shadow of the Covid 19 pandemic. The sharemarket is always forward looking. Hawaii and Australia were relatively unaffected because certain sales restrictions in their respective Covid-19 environments were able to be offset by doing business in other channels. So what happens to the FY2020 result if you:

1/ Make suitable adjustments for the New Zealand lock-down Covid-19 effect?
2/ Include a full twelve month's sales from the Californian acquisition (not just four months)?

1/ New Zealand Effect

The 'Directors Report to Shareholders' for FY2020 shows:

1/ Lost sales of $40m over a five week 'level 4' lock-down period, partially offset by
2/ $22m of wage subsidy payments, that nevertheless did not cover the wage bill
3/ The company paid out $2.5m in top up wages ($0.5m per week over a five week lock down period).

To get a feel for the 'EBITDA effect' of all that, we need to take out the "Covid shock" by looking at the EBITDA margin for these businesses in 'normal times'. For 'normal times' I am looking at the AR2019(2) for the ten months ending 31st December 2019 (the previous reporting period just before the pandemic hit.) Over this period I have combined the EBITDA figures for KFC, Pizza Hutt and Carl's Junior, and divided that total by their respective combined sales total. That gives an estimate of the 'EBITDA margin' for the whole New Zealand business in 'normal times'.

($66.1m + $0.9m + $1.3m) / ($308.4m + $28.4m + $29.9m) = $68.3m/$366.7m = 18.6%

This means with $40m of lost sales, RBD NZ lost an estimated : $40m x 0.186 = $7.4m of incremental EBITDA.

Under normal operating conditions, the above EBITDA earnings figure is derived after wages have been paid. Under the Covid-19 lock-down, $22m of wage subsidies were paid by the government with no associated restaurant revenues. This means to 'normalise income', we need to remove the $22m of government subsidy from the income statement. But at the same time, we need to add back in as income of $22m that can be distributed as 'company paid salaries'. These are salaries that would have been funded by sales, had those sales been allowed to occur under the Level 4 lock down. The funding for these 'company paid salaries' is from ordinary revenue, upstream of the EBITDA calculation. You can even think of salaries as a revenue funded 'company salary provision' that is passed on to employees if you like.

Things not affected by the lock downs include the depreciation of fit-outs of premises and the amortisation of various franchise agreements. In other words when calculation the incremental amount of EBIT it is the same as the incremental amount of EBITDA because the 'D' and 'A' components deducted in the EBIT calculation (EBIT=EBITDA-D-A) do not change. So the incremental gain in EBIT is also $7.4m.


Californian Operations

From the directors annual summary

"In $NZ terms the California operations contributed $NZ51.924 million in revenues and $NZ8.516 million in EBITDA (before IFRS 16) for the four month period from 2 September 2020."

Annualising this over 12 months equates to $NZ155.772m in revenues and $NZ25.548m in EBITDA. Thus the incremental EBITDA for a 12 month period would have been $NZ25.548m - $NZ8.516m = $NZ17.032m

If readers look at the detailed segment breakdown for FY2020 ( AC2020 Note 1), they will see something extraordinary. There is no franchise fee amortisation and only minimal depreciation for 69 Californian restaurants! EBIT for four months is listed as $NZ5.127m. I have to assume this is a timing issue, and in no way reflects four monthly costs let alone what might be expected over a year. Given that these restaurants are similar in number and franchise breakdown to RBD's Australian portfolio of 70 restaurants, I am going to use the Australian Depreciation and Amortisation figures to adjust the disckosed EBITDA figures to EBIT.

Annualised Californian EBIT for 2020 = $NZ25.548m - $NZ8.684m - $NZ0.464m = $NZ16.400m

Incremental EBIT for 12 month Californian division = $NZ16.400m - $NZ5.127m = $NZ11.273m


--------------

Now we have worked out the normalising changes to the EBIT and EBITDA figures as we move into FY2021, let's see what difference that makes to the company valuation.

SNOOPY

[Snoopy]

Now we have worked out the normalising changes to the EBIT and EBITDA figures as we move into FY2021, let's see what difference that makes to the company valuation.


The following valuation is based on historical earnings as listed in the FY2020 annual accounts that covered the twelve month period, included Covid-19 lock-downs, ended 31-12-2020. In contrast to the last iteration, I have attempted to remove the effect of Covid-19. I have also annualised the contribution of the Californian division that was acquired only part way through the year. These two changes make things more representative of the earnings we might expect to see from RBD over FY2021.

It is common to value a company based on 'enterprise value'. This reflects the fact that anyone acquiring a company for the purposes of control will have to pay the market value for the shares (a positive asset) and take on the book value of the balance sheet value of the net debt (a negative asset).

Enterprise Value = Market Capitalisation +Total Debt − Cash

In this instance the 'Enterprise Value market factor' is determined by historical earnings multiples that the market has determined it would be willing to pay for similar companies. This information can be found in the 'Target Company Statement' as commissioned by 'Restaurant Brands' in response the 'Finaccess' offer to buy a controlling stake in RBD in early 2019.



Historical EBITDAHistorical EBITReference


As Calculated$106.785m$69.958m My post 2650


plus Remove NZ Cov19 Effect$7.400m$7.400m My post 2653


plus Annualize Californian earnings$17.032m$11.273m My post 2653


equals Forecast FY2021 earnings {A}$131.137m$88.631m


Market Multiple {B}10.918RBD Commissioned Independent Advisors Report p32


Net Bank Debt @ 31-12-2020: (Total Bank Debt - Cash) {C}$200.732m$200.732mAC2020 'Balance Sheet'


Enterprise Value @ 31-12-2020: {A} x {B} - {C}$1,228.661m$1,394.626m


No. of Shares on Issue@ 31-12-2020 124.759m$124.759m


Enterprise Value 'per share'$9.85$11.19



The share price closed at $12.45 on 10-03-2021 You could argue that since Covid-19 there has been a 'flight to safety' and those companies supplying staples (like food) have been re-rated. You could also argue that lower market interest rates have themselves pushed share valuations higher. However the premium that the market is pricing into these shares certainly exists (between 11% and 26%). Yet for the first time it is becoming clear that under Finaccess management, the company is now powering ahead in value from where company was valued at takeover time ($9.45 in early 2019). Good as this company is, it looks to me to be too highly priced to reflect any type of historical norm fair value. Consequently I would continue to suggest new investors avoid putting money into RBD at these prices.

SNOOPY

discl: who nevertheless intends holding onto my own residual 'post controlling takeover' shareholding!

[Snoopy]

'Margins' in this context means 'Net Profit Margins'. This is the net profit, excluding non-trading items, divided by the total sales for the year. Note that in a change from the 2015 perspective, I am now including 'other revenue' as part of the representative on-going revenue of the company. This is because the largest part of other revenue is money received from YUM to act as master franchise holder for Pizza Hut in New Zealand. And this is a revenue stream that will be on-going

2017: $30.567m / $517.549m = 5.9%
2018: $40.361m / $766.289m = 5.3%
2019(1): $42.181m / $824.9m = 5.1%
2019(2) (a): $45.7m / $867.1m = 5.3%
2020: $46.7 / $924.778m = 5.1%

Notes

(a) Revenue annualised in my post 2622

The profit margin is back to its all time low of recent times. Our Russel has continued his object lesson in how to reduce net profit margins. Growth in revenue is all very well. But if you are not increasing your profit as a percentage of revenue, and you have to employ new equity to create your growth, 'long term' this can be a formula for standing still on an earnings per share basis.

Conclusion: FAIL TEST


I would like to make some more comment on the statistic that 'sunk' my Buffett style analysis for RBD. I think it is interesting to compare what happened at RBD net profit margins to a couple of other NZX listed players in the 'fast meal industry' over periods that represent a 'before lock down' and 'during lock down' comparative time frames.



Net Profit MarginsPre Covid 19 period
Post Covid 19 PeriodReference


My Food Bag4.1%7.2%
HY2019(30-09-2019) cf HY2020(30-09-2020)


Burger Fuel Group5.2%3.7%HY2019(30-09-2019) cf HY2020(30-09-2020)


Restaurant Brands4.5%2.8%HY2019(30-06-2019) cf HY2020(30-06-2020)



There is an obvious disconnect with 'My Food Bag' improving their performance through the Covid-19 period while the others declined. This is explained by both 'Burger Fuel' and 'Restaurant Brands' having to close all their NZ restaurants during the Level 4 lock-down. The shutting down of dining options ironically was a boost to 'My Food Bag'. From Level 3 onwards, MFB were able to provide relief to outgoing kiwis not used to shopping, planning and cooking seven days worth of meals in their own homes. The more pertinent point to observe is that the net profit margins at RBD are nothing special. So the inability of RBD to raise margins is a real weakness in wider industry terms.

Now here are some slightly comparable statistics from the various divisions of RBD over FY2020



TerritoryEBITDA Margin


New Zealand18.5%


Australia13.7%


Hawaii15.6%


California16.4%



That table would suggest that the latest Californian acquisition is a fantastic acquisition only just shy of NZ levels of profitability. However the key figure to focus on is 'I' and that is not found in the table. Net debt has blown out by $80m with the Californian acquisition. At an indicative interest rate of 4.3% this represents an additional annual interest bill of $3.4m.

EBTDA Margin = [$US5.8m - ($NZ3.4m x 0.7 x 4/12)] / $US35.6m = 14.0%

Adding in the incremental interest charge, the net result is the Californian acquisition has decreased the net profit margin of the company, despite the encouraging EBITDA margin of the acquisition.

This is an example of what Warren Buffett terms 'The Institutional Imperative', or growing by acquisition for growth's sake (the much touted one billion dollar sales goal) . 'The Institutional Imperative' is the drive to grow the size of the company with no regard for any decrease in profit generating efficiency, in this case 'net profit margin'. The end result of this growth process, if it continues, is that eventually a company will likely no longer be able to earn its cost of capital. Restaurant Brands are a long way from that state, but they are on that path. The fact that each region has their own chief executive and operating structure would suggest there are few inter-regional 'economies of scale' that the international umbrella structure of 'Restaurant Brands' can bring to this multi-regional company.

The relatively low profitability, in industry terms, means Restaurant Brands cannot respond to future competition by spending, without reducing their profitability to bottom of the industry levels. And if competition is liable to severely disrupt Restaurant Brands over the next ten years, that means the 'Buffett Growth Model' will not work as an analysis tool.

SNOOPY

[BlackPeter]

Anybody else had a look at their annual report (published 31 March)? I guess it is full of exciting pictures of fatty unhealthy foods, the balance sheet has more debt (as well as in proportion) as ever - their liabilities to asset ratio is now above 80%. Who knows, maybe they want to turn into a bank and decided to start with rising the liabilities?

Obviously - the frugal equity helps to keep a two digit ROE ​... I knew there must be something good about loads of debt.

NTA dropped from negative 26 cents to negative 73 cents per share ... maybe they did eat too many Californian fast food outlets?

Otherwise - chair is excited about the future. One Billion turnover - here we come! As long as people like to eat heaps of unhealthy and fat food in order to inherit the properties of the food they eat this must be the winner in anybodies portfolio. Reminds me of Tabaco company shares some decades ago ...

Maybe mix with some FPH and other health care shares to keep profiting from RBD's victims oops - customers, when they need medical help to deal with the consequences of diabetes and obesity.

This leaves only one question: "Do you want fries with that?"

Discl: Not sure why, but I could resist ... not holding :):

[Gonzo]

Anybody else had a look at their annual report (published 31 March)? I guess it is full of exciting pictures of fatty unhealthy foods, the balance sheet has more debt (as well as in proportion) as ever - their liabilities to asset ratio is now above 80%. Who knows, maybe they want to turn into a bank and decided to start with rising the liabilities?

Obviously - the frugal equity helps to keep a two digit ROE ​... I knew there must be something good about loads of debt.

NTA dropped from negative 26 cents to negative 73 cents per share ... maybe they did eat too many Californian fast food outlets?

Otherwise - chair is excited about the future. One Billion turnover - here we come! As long as people like to eat heaps of unhealthy and fat food in order to inherit the properties of the food they eat this must be the winner in anybodies portfolio. Reminds me of Tabaco company shares some decades ago ...

Maybe mix with some FPH and other health care shares to keep profiting from RBD's victims oops - customers, when they need medical help to deal with the consequences of diabetes and obesity.

This leaves only one question: "Do you want fries with that?"

Discl: Not sure why, but I could resist ... not holding :):

my free voucher last week

[winner69]

Was going to post something about YUM brands loving the way KFC going in the US ....but link.wont work

[Sideshow Bob]

Taco Bell hits Chch......even with rent-a-crowd!

Taco Bell opens in Christchurch | Otago Daily Times Online News (odt.co.nz) (https://www.odt.co.nz/business/taco-bell-opens-christchurch)

[BlackPeter]

Taco Bell hits Chch......even with rent-a-crowd!

Taco Bell opens in Christchurch | Otago Daily Times Online News (odt.co.nz) (https://www.odt.co.nz/business/taco-bell-opens-christchurch)

Looks like they rented the blue sky as well ... just wondering where to hire that (unless it is an old photo ...)?

[Rawz]

Not a fan of Taco Bell but love my RBD shares. A good compounder

[Panda-NZ-]

Recession proof too, better than a power company there.

[winner69]

Recession proof too, better than a power company there.

I’ve had greater long term returns from RBD than SUM

Greasy chicken wins

[BlackPeter]

I’ve had greater long term returns from RBD than SUM

Greasy chicken wins

Probably a timing issue, but sure - helping to kill people can be good business. Just look at Tabaco companies and weapons manufacturers.

[BlackPeter]

Sigh - just removing the usual duplicate. Thanks for poor server performance.

[Snoopy]

Probably a timing issue, but sure - helping to kill people can be good business. Just look at Tobacco companies and weapons manufacturers.


I have been an RBD shareholder since day dot, so I guess you would class me as a killer. Guilty of 'corporate manslaughter' at the very least. My memory goes back to the old white painted 'hut' restaurants that were boxes for counters at which you could pick up your takeaways from, with a few hard chairs to sit at for those who didn't want their purchase to 'grease up' before they got it home.

No-one would argue that basing your daily diet around KFC is not bad for you. You could probably make the same allegation against your local fish and chip shop which serves up a super size helping of chips compared to KFC. However unlike tobacco, KFC is not chemically addictive. You won't have shivering withdrawal symptoms by missing a feed of KFC. There have been various attempts at healthier salad based KFC options over the years. I don't recall any having real 'stiction'. My reading of this, coupled with the fact that no death certificate has been signed 'ate too much KFC', is that the responsible KFC customers have KFC as a just one element of a broader based and perfectly healthy diet.

I walked past the new city restaurant based KFC in downtown Wellington the other day. It was mid morning and a group of men in hi-vis clothing were in there 'greasing down' some boxed offerings of chicken. But I bet those guys were expending a lot more work energy that I do pushing buttons on a keyboard. So who am I to argue their calories out does not more than compensate for their calories in?

Where I would draw the line is promotion to children, with the incentive for repeat visits being building up a set of plastic toys (for example). IIRC MacDonalds have been guilty of this, but I can't recall KFC doing the same. And yes I do admit there are probably some adults that do eat too much KFC. But I would point out you do have to make a personal decision to go out of your way to get KFC. Unlike cigarettes, it is not available at the supermarket when you make your grocery run. Apart from closing the KFC chain down what is your solution BP?

Make people earn a 'certificate of nutrition', before they are allowed to shop at KFC? Maybe have electronic scales that you have to stand on as you enter a KFC with a laser to determine your height so that you can get a 'BMI' pass before you are allowed in the door? Or perhaps you would like to see a more general wider law passed banning stupidity?

SNOOPY

[BlackPeter]

I have been an RBD shareholder since day dot, so I guess you would class me as a killer. Guilty of 'corporate manslaughter' at the very least. My memory goes back to the old white painted 'hut' restaurants that were counters to pick up your takeaways from with a few hard chairs to sit at for those who didn't want their purchase to 'grease up' before they got it home.

No-one would argue that basing your daily diet around KFC is not bad for you. You could probably make the same allegation against your local fish and chip shop which serves up[ a super size helping of chips compared to KFC. However unlike tobacco, KFC is not chemically addictive. You won't have shivering withdrawal symptoms by missing a feed of KFC. There have been various attempts at healthier salad based KFC options over the years. I don't recall any having real 'stiction'. My reading of this, coupled with the fact that no death certificate has been signed 'ate too much KFC', is that the responsible KFC customers

It is ok, Snoopy - even various churches and religions make money with peoples deaths ... which included at times killing them beforehand, though admittedly - they rarely make the big money with the process of killing them :):

If you are wondering how many people die from the obesity epidemic (2.8 million annually according to WHO figures: https://www.who.int/news-room/facts-in-pictures/detail/6-facts-on-obesity) - this is ways more in average than people killed by tabaco and various weapons and roughly comparable what Covid killed over the last 12 months ... only that obesity is repeating this exercise every year.

Admittedly - I don't know how much of this obesity death toll is created by KFC, how much by the local Fish'n chips shop and how much by soft drink makers like Coco Cola. I am sure they all get their fair share.

I guess not knowing is bliss, isn't it?

[Rawz]

Probably a timing issue, but sure - helping to kill people can be good business. Just look at Tabaco companies and weapons manufacturers.

Comparing succulent chicken to tobacco and weapons? You've lost me.

The colonel's finest brings happiness and joy to a lot of people :p.
I had a feed of it on Saturday after 4 long days at the national field days. :t_up:

[BlackPeter]

Comparing succulent chicken to tobacco and weapons? You've lost me.

The colonel's finest brings happiness and joy to a lot of people :p.
I had a feed of it on Saturday after 4 long days at the national field days. :t_up:

You need to talk with a smoker to learn how good they think a pipe or a cigarillo or a cigarette is for them - I would not know :):

And hey, there are positive health effects of smoking as well - my grandmother in law started smoking with age 65 (as recommended by her GP) to help her bowel movements. Apparently it did work - and no, while she died around age 80 it was not due to tabaco consumption :):

I never said either that an ocasional fast food meal can't be tempting or would be damaging for your health - hey, I used to visit them once in a decade or so while our kids still have been small. While I never enjoyed the experience - I don't think that the handful of fast food meals I ate during my life time had any negative impact on my health.

Same can be said about the occasional cigarette and the lawful use of guns (apart from in international conflicts, of course) - so, I think the comparison is not too far fetched. All products which create for some an enjoyable experience but kill a material number of either their clients or help them to kill others.

I am sure as long as fast food outlets are used in moderation the positive effects of enjoying an occasional unhealthy meal can well balance the negative. Unfortunately however - too many people are addicted to eating too much (see link provided in prior post or just google obesity epidemic), and for these unfortunate people are the RBD's of the world just creaming it by helping them to kill themselves (and their kids, which already get addicted in young years) faster.

Obviously - they are not the only company making money by helping people to ferry themselves and others faster across the river Jordan ... so no worries.

[Rawz]

I get what you are saying BlackPeter but sometimes people are just happy to eat bad or smoke or drink too much etc. Yes they probably are going to die earlier but sometimes they have lived on balance a happier life than someone living 5 or 10 years longer- just because you live longer it doesn't mean you have had a better life than the next person.

Reminds me of a customer I had a few years back, I helped finance him into a $500k truck that had $100k worth of pointless addons- lights, chrome, mint paint job etc. I showed him how much extra money he could take home each month if he just went with the base model. He didn't care, he was happy living a modest life on a modest income, but I swear he had the BEST LOOKING TRUCK running from Auckland to Tauranga! He was a happy man.

[percy]

I get what you are saying BlackPeter but sometimes people are just happy to eat bad or smoke or drink too much etc. Yes they probably are going to die earlier but sometimes they have lived on balance a happier life than someone living 5 or 10 years longer- just because you live longer it doesn't mean you have had a better life than the next person.

Reminds me of a customer I had a few years back, I helped finance him into a $500k truck that had $100k worth of pointless addons- lights, chrome, mint paint job etc. I showed him how much extra money he could take home each month if he just went with the base model. He didn't care, he was happy living a modest life on a modest income, but I swear he had the BEST LOOKING TRUCK running from Auckland to Tauranga! He was a happy man.
Each to their own.Still a free world.

[BlackPeter]

I get what you are saying BlackPeter but sometimes people are just happy to eat bad or smoke or drink too much etc. Yes they probably are going to die earlier but sometimes they have lived on balance a happier life than someone living 5 or 10 years longer- just because you live longer it doesn't mean you have had a better life than the next person.

Reminds me of a customer I had a few years back, I helped finance him into a $500k truck that had $100k worth of pointless addons- lights, chrome, mint paint job etc. I showed him how much extra money he could take home each month if he just went with the base model. He didn't care, he was happy living a modest life on a modest income, but I swear he had the BEST LOOKING TRUCK running from Auckland to Tauranga! He was a happy man.

Can't comment on the truck experience ... but while all these add-ons you are talking about probably have been not very economical, I suppose they didn't damage anybody's health either.

Related to fast food - I guess it depends. No issue if its occasional and in moderation. However - most people will agree that being below the obesity line increases not just (statistically) your life expectancy, but makes the life experience as well much more enjoyable.

[nztx]

Comparing succulent chicken to tobacco and weapons? You've lost me.

The colonel's finest brings happiness and joy to a lot of people :p.
I had a feed of it on Saturday after 4 long days at the national field days. :t_up:



Does this mean that single RBD Shares have become Collector's items , like for example Stamps & Coins ? ;)

After all, any smell of a dividend looks like it's AWOL as rare as Hen's Teeth & staying that way for an eternity
as the offshore controlling interest play 'build an international Food Empire' to their hearts content ignoring all the
minority holders out there - who they probably consider are so avidly interested that they can park a few bucks
up in RBD shares showing Zero dividend return & a sniff of the recipes on offer for those venturing in .. ;)

[percy]

Six years ago the trust I am a trustee of spent $50,000 buying 12,216 RBD shares.In the meantime we did receive some divies.Current market value of the RBD investment is $170,046.72.No intention of selling .

[Sideshow Bob]

Six years ago the trust I am a trustee of spent $50,000 buying 12,216 RBD shares.In the meantime we did receive some divies.Current market value of the RBD investment is $170,046.72.No intention of selling .

And also I think received some vouchers for some of their top-notch product from their fine establishments!! :cool:

[Gerald]

Six years ago the trust I am a trustee of spent $50,000 buying 12,216 RBD shares.In the meantime we did receive some divies.Current market value of the RBD investment is $170,046.72.No intention of selling .


I wonder how much of that is due to eps growth vs mutiple expansion :p

[percy]

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

[percy]

I wonder myself.?...lol.
I would guess a bit of eps growth and a good bit of multiple expansion.
The same has happened with other holdings in the portfolio:CNU,EBO,FPH,FRE,MCY,MEL,PGW,RYM,SKL,SPK, SUM,and TRA,.

[ratkin]

Went to Linwood to check out the new Taco bell just now. Queuing round the corner and half the carpark coned off to make more room for the drive in queue.
Gave up waiting, was getting hangry

[nztx]

Someone seems to have developed a taste for more than one RBD Collector share at a time ..;)

can't be a lot on the loose out there .. ;)

RBD may come knocking on Percy's door to see if he can spare some for reallocation out to others wanting some
of these Collector pieces in their ones & two's soon.. ;)

[Snoopy]

I wonder how much of that is due to eps growth vs mutiple expansion :p


Over FY2014 I recorded a normalised profit of $18.8m and eps of 19.3cps. The share price as at 31st March 2014 was $2.93. This gives a backward looking PE ratio of:

$2.93 / $0.193 = 15.2


Over FY2020 I recorded a normalised profit of $49.8m and eps of 39.9cps. The share price as at 31st March 2020 was $13.30. This gives a backward looking PE ratio of:

$13.30 / $0.399 = 33.3

The PE ratio over this time has approximately doubled. So about half of your share price gains are due to earnings growth and half due to multiple expansion. There is some justification for the PE to ramp up. Back in FY2014 RBD was almost entirely domestically focussed, Since then we have moved into Australia, Hawaii and California to form a 'Pacific International' fast food group.

Obviously the opportunity for growth around the Pacific is far greater than just here. So you might argue a growth in PE is justified. It should please BP too as are we not only reducing the life span of New Zealanders, for some ecological benefit. We are tackling the life spans of those people from those desert areas of Australia and California that are, in environmental terms, more overpopulated than us. Making a good profit for shareholders and doing your thing for the environment sounds like a win/win to me.

SNOOPY

[Panda-NZ-]

Time to sell soon I think but I understand those who would like to hold longer.

[BlackPeter]

...

Obviously the opportunity for growth around the Pacific is far greater than just here. So you might argue a growth in PE is justified. It should please BP too as are we not only reducing the life span of New Zealanders, for some ecological benefit. We are tackling the life spans of those people from those desert areas of Australia and California that are, in environmental terms, more overpopulated than us. Making a good profit for shareholders and doing your thing for the environment sounds like a win/win to me.

SNOOPY

Hmm ... do I really come across as that cynical, or is this just what you want to read into my posts?

Anyway - apart from that, interesting analysis.

[percy]

Six years ago the trust I am a trustee of spent $50,000 buying 12,216 RBD shares.In the meantime we did receive some divies.Current market value of the RBD investment is $170,046.72.No intention of selling .

Above posted 12 days ago.
Market value at Friday's close was $180,796.80.an increase of $895.84 per day.

[Gunner]

Drive past taco bells in Christchurch today. Big que out the door. Some people really need to get a life.

[CraftyBeer]

Drive past taco bells in Christchurch today. Big que out the door. Some people really need to get a life.

Queues still? I'd like to know what the Taco Bell profit margins are like - food costs should be cheaper just because mainstay items like tortillas and beans are so cheap. Also much easier to store and keep tortillas than hamburger buns. Lots of complaints on Reddit at the prices compared with USA but RBD seem to have been smart just to price at about the same costs as other QSR offerings - perhaps a little cheaper.

[winner69]

Above posted 12 days ago.
Market value at Friday's close was $180,796.80.an increase of $895.84 per day.

Good stuff eh percy

I've held mine since 2008/2009 when snoopy convinced me they were really cheap at round $1

Suppose they are a 14 or 15 bagger now.

[percy]

Good stuff eh percy

I've held mine since 2008/2009 when snoopy convinced me they were really cheap at round $1

Suppose they are a 14 or 15 bagger now.
Well done,to both you and Snoopy..

[Rawz]

Good stuff eh percy

I've held mine since 2008/2009 when snoopy convinced me they were really cheap at round $1

Suppose they are a 14 or 15 bagger now.

That's awesome.

I purchased my first lot Dec 21 at $11.90.
Hope to be posting in 13-14 years about a 14 or 15 bagger.

[winner69]

Jeez RBD closes at $15,00

Is that an all time high?

Might get to $20.00 by end of next year

[Snoopy]

Jeez RBD closes at $15,00

Is that an all time high?

Might get to $20.00 by end of next year


Yes 15 bucks is definitely an all time closing high, even if it was below the intraday high of $15.12. I had another look at that FY2020 RBD report today. Except in New Zealand, the only territory where all RBD stores were completely closed for 5 weeks, the figures would suggest that RBD was otherwise powering ahead through Covid-19. Even in NZ, EBITDA as a percentage of sales held steady over the year.

The Hawaiian result was particularly impressive, with sales up 6.5% with two fewer restaurants in operation (7.7% same store growth). Pizza Hut was the star, with Hawaiians resonating with the 'no touch contact-less delivery' rolled out with curbside delivery. The demise of 7 old style dine in restaurants, replaced with kiosk style stores, was a bonus. Did you know the largest Pizza Hut operator in the USA, 'NPC International' went into Chapter 11 bankruptcy last year? Although 950 of those Pizza Hut restaurants bounced back under new ownership, by Rynn Restaurant Group, 300 Pizza Hut stores were lost, primarily 'dine in units'. The shift from Pizza Hut dine ins to delcos, with hindsight looks like it really started in New Zealand, under RBD twenty or so years ago. This, and the pre-emptive restaurant refurbishment programs at KFC restaurants makes 'our Russel' a real 'poster boy' for master franchise holder 'YUM Restaurants' globally.

Australian same store sales were up 2%, despite Covid-19 restrictions.

The Californian crew performed 'well above expectations' and should perform better with fewer Covid-19 restrictions. What is more the FY2020 year contained only four months contribution from them. So even if group sales are static for FY2021, that will mean an 8% rise in EBITDA for the whole RBD group just from twelve months of Californian ownership! I am pretty sure I know why they did so well too. Just look at that picture on p18 and p189 of AR2020. I reckon the whole senior management team over in California have been hypnotized. They are totally convinced that 'our Russel' is the reincarnation of 'The Colonel' and will do anything for him.

The biggest thing I can see that has changed since the 'Global Valar S.L.' taking control, is the rise and rise of delivery, especially at KFC, coupled with the improvement in on line ordering apps. Delivery was mostly from third party labour like 'Uber eats' and I am picking much of that trade is incremental. Can RBD keep up their run rate? I wouldn't bet against them! However at a share price of $15 we are looking at a backwards looking PE, annualised for the Californian acquisition, of over 30. Not cheap, but then I have said that for a few years now.

SNOOPY

discl: happy holder of my residual post takeover shareholding, but not adding more at today's prices.

[winner69]

Jeez RBD closes at $15,00

Is that an all time high?

Might get to $20.00 by end of next year

Jeez RBD closes a few cents off 16 bucks

Might get to 20 bucks THIS YEAR …..not end of next year

[Rawz]

Jeez RBD closes a few cents off 16 bucks

Might get to 20 bucks THIS YEAR …..not end of next year

$9m traded today.
SP fairly high now. Happy to hold but not buying at these levels.. $10m shy of a $2b company. Who would have thought. Credit to management

[Snoopy]

Jeez RBD closes a few cents off 16 bucks


A 40% rise in share price this year does seem excessive. Unless that Taco Bell really takes off in NZ, It is interesting to read the reviews for the newest NZ store in Christchurch. Still a 30 minute wait in the car to get served as of last week, which was two weeks after opening!

https://www.google.com/search?channel=fs&client=ubuntu&q=taco+bell+christchurch+reviews#lrd=0x6d31899c468 3d0c5:0xcdeb9985d7f3a55e,1,,,

Quite a few 'five star' and 'one star' experiences. So it seems to be polarising which isn't entirely bad news. As long as there is enough demand from a steady core of highly satisfied customers Taco Bell should do well in Christchurch



Might get to 20 bucks THIS YEAR …..not end of next year


You know what to do to make it happen Winner. Give up those Oysters and Chips and get down to that new up market KFC city store in Courtenay Place instead. Bring all those bowling club mates of yours to get them excited. One quarter pack and one RBD share from Sharsies. What a combo!

SNOOPY

[Sideshow Bob]

RBD Q2 Sales Announcement - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/376416)

BD Q2 Sales Announcement

29/7/2021, 1:29 pmMKTUPDTE29 July 2021
ASX/NZX

Restaurant Brands Delivers Solid Sales Growth for the Second Quarter

Restaurant Brands’ total sales for the second quarter to 30 June 2021 were $280.9 million, an increase of 53.3% (including trading from its California acquisition last year).

The increase in sales of $97.6 million was as a result of a recovery from prior year’s COVID-19 trading restrictions (including Government-mandated COVID-19 store closures in April in New Zealand), coupled with the inclusion of trading for the California acquisition, 11 additional stores in Australia, and strong same store sales growth in all regions.

COVID-19 continues to impact the business, resulting in a higher mix of drive through and delivery sales in all markets.
Total year to date sales were $540.6 million, an increase of 41.0% on the prior year (including the California acquisition).

Company owned store numbers were up by 60 on the equivalent period last year to 350, primarily as a result of the acquisition of 69 stores in California in September 2020.

New Zealand

Second quarter sales for New Zealand were $124.1 million, an increase of $47.5 million or 61.9% on a total basis and 14.0% on a same store basis.

KFC, Pizza Hut and Carl’s Jr. all showed solid same store growth, whilst the newly opened Taco Bell stores continue to trade at expected levels.

Total year to date sales were $239.3 million, an increase in total of 37.0% on the prior year and 12.5% on a same store basis
The comparative total sales growth was assisted by the loss of four weeks of trading in April last year as a result of Government-mandated COVID-19 store closures, which resulted in lost sales of approximately $33 million in the quarter.

Store numbers decreased by four during the quarter to 132, with the sale of six Pizza Hut stores to independent franchisees partly offset by the opening of two new stores (KFC Takanini and Taco Bell Eastgate, Christchurch).

Australia
Second quarter sales for Australia were $A60.7 million ($NZ64.9 million), an increase of 32.9% in total, primarily due to reduced COVID-19 trading restrictions, new store openings late last year and store acquisition activity.

Same store sales were up 9.5% (local currency), with drive-through store sales continuing to grow strongly; however mall and in-line inner city store sales have yet to recover to pre-COVID-19 levels.

Total year to date sales were $A114.8 million ($NZ123.0 million), an increase of 21.6% on a total basis on the prior year and 5.2% on a same store basis.
Store numbers increased by one during the quarter to 76, following the opening of a new Taco Bell store in Green Square, Sydney. Compared with the prior year they were up 11 with acquisitions (five stores) and new store builds (six stores).

Hawaii

Second quarter sales in Hawaii were $US37.2 million ($NZ51.9 million), an increase of 4.7% on a total basis and 10.1% on a same store basis (local currency). Sales in $NZ were lower due to the 15% appreciation of the New Zealand dollar compared to the prior year second quarter.

Pizza Hut continues to respond well to the increased demand for home delivery. The small downturn last year in Taco Bell sales has reversed following some lifting of COVID-19 restrictions.

Total year to date sales were $US72.7 million ($NZ101.0 million), an increase of 5.7% on a total basis on the prior year and 9.9% on a same store basis.
Store numbers remained steady during the quarter at 73 stores.

California

Second quarter sales were $US28.7 million ($NZ40.1 million), up on both prior year levels and pre-purchase expectations.
Total year to date sales were $US55.2 million ($NZ77.3 million).

Store numbers remain unchanged from the 69 stores acquired in September 2020.

Half Year Results
The company expects to release its half year trading results on 24 August 2021.

Authorised by:
Russel Creedy Grant Ellis

[Sideshow Bob]

Onwards and upwards....!!


Restaurant Brands Half Year Financial Results 2021 - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/377788)

Restaurant Brands Half Year Financial Results 2021

24/8/2021, 9:08 amHALFYRDirectors’ Report to Shareholders

For the six months ended 30 June 2021
(1H 2021)

Key Highlights

($NZm) 1H 2021 1H 2020 Change ($) Change (%)
Total Group sales 540.6 383.4 +157.2 +41.0
Group NPAT (reported) 34.5 11.2 +23.3 +208.0
• Total Group sales for the six months to 30 June 2021 (1H 2021) were $540.6 million, up $157.2 million on the previous half year (1H 2020). This is the result of the inclusion of the California business in 2021 and the adverse impact of COVID-19 in 2020.
• Net Profit after Tax for 1H 2021 was $34.5 million (27.66 cents per share), up $23.3 million on 1H 2020. The current result includes recognition of $11.4 million of loan forgiveness under the US Paycheck Protection Program (PPP).
• Brand EBITDA before G&A was up $26.5 million to $89.9 million, of which $12.7 million came from the inclusion of a maiden profit from the new California division. The comparison was enhanced by the effect of COVID-19 store closures in New Zealand in the 1H 2020 result*.

Group Operating Results

Directors are pleased to report that Restaurant Brands New Zealand Limited (RBD) has earned a Group Net Profit after Tax (NPAT) of $34.5 million for the six months ended 30 June 2021 (1H 2021). This is up $23.3 million on the last half-year’s reported result. Although the company continues to face challenges from COVID-19 the operating results have remained strong across all divisions.
The result includes $77.3 million in sales and $12.7 million of brand EBITDA from the newly acquired California division.

This, combined with the adverse effect of COVID-19 on the 1H 2020 results, compromises the opportunity for direct comparisons between the two half years’ reported results. Comparisons at a reported profit level are further distorted by the recognition of $11.4 million ($US8.1 million) in relation to the PPP loan drawn down last year at the beginning of the COVID-19 pandemic, that was forgiven during the period.

After adjusting for the PPP loan, the underlying NPAT would be $23.1 million, up $11.9 million. This increase is due to rolling over the adverse effect of COVID-19 on the 1H 2020 results, the addition of the new Californian business and the strong trading results in the current year.

Total store sales hit a new high of $540.6 million, up $157.2 million or 41.0% on 1H 2020, thanks to the inclusion of $77.3 million in sales from the California business (acquired in September 2020). Very strong same store sales growth from the other divisions also contributed.

Combined brand EBITDA at $89.9 million was up $26.5 million (41.7%) on 1H 2020*, with the increase arising from strong sales growth in the current year, a $12.7 million contribution from the California division and the COVID-19 impact on the prior year’s results.

Restaurant Brands’ store numbers now total 350, up 60 on the 1H 2020 – again largely due to the inclusion of 69 stores in California. This is partly offset, however, by the sale of New Zealand Pizza Hut stores to independent franchisees. There are now 132 RBD-owned stores in New Zealand, 73 in Hawaii, 69 in California and 76 stores in Australia.
*Including government grant of $22.1 million in 1H 2020.

New Zealand Operations

New Zealand store sales were $239.3 million, up $64.7 million or 37.0% on 1H 2020. Particularly strong sales in KFC and Carl’s Jr. made an impact here, as well as rolling the five week COVID-19 lockdown in 1H 2020 (an estimated $40.0 million in lost sales). Same store sales were up a healthy 12.5%.

EBITDA was $43.1 million, a $9.5 million or 28.3% increase on 1H 2020 as a result of the strong store sales performance and rolling the five week store closure in the June 2020 result*. EBITDA margin at 18.0% was slightly softer on prior year with some cost pressures and the mix of less profitable Taco Bell brand sales as this business continues to build.
Actual 26 weeks 30 June 2021

Actual 26 weeks 30 June 2020 Change ($) Change (%) Store sales ($NZm)
239.3 174.6 +64.7 +37.0
EBITDA ($NZm) 43.1 33.6* +9.5 +28.3
EBITDA as a % of Sales 18.0 19.2
Store Numbers 132 150
*Including government grant of $22.1 million in 1H 2020.

The result has been led by another strong performance from KFC combined with Carl’s Jr. where sales continue to grow through both the delivery and store channels. At this stage, Taco Bell contributes only a small proportion of the New Zealand business sales with the five stores opened to date continuing to track in line with expectations.

Operating profit for the NZ division (excluding the effect of NZ IFRS 16) was $28.7 million (up 68.5%).
The Pizza Hut sub-franchising process continued with seven stores sold to independent franchise operators and two new stores opened by independent franchisees over the first half year taking the total number of stores in the wider Pizza Hut network to 105. The effect of these franchisee store sales on total RBD owned store numbers was offset by one new KFC store opening in Takanini, Auckland, and the fifth Taco Bell store (first in the South Island) opening in the Eastgate Shopping Centre, Christchurch. Both are trading ahead of expectations.

The KFC Takanini store that opened in April 2021 incorporates a range of innovations that improve sustainability, including use of solar panels and energy efficient water heating. Customer experience is also enhanced through new features such as a dual lane drive-thru and a separate click & collect area.

An additional four Taco Bell stores and two KFC stores are expected to open before the end of the year.
KFC is proud to be celebrating its 50th anniversary in New Zealand with the first store having opened in Royal Oak, Auckland in 1971.

Australia Operations

In $NZ terms the Australian business contributed total sales of $NZ123.0 million (up 24.1%), a store EBITDA of $NZ16.3 million (up 37.9%) and operating profit (excluding the effect of NZ IFRS 16) of $NZ5.6 million (up 106.3%).

In $A terms total sales in Australia were $A114.8 million, up $A20.4 million (or 21.6%) on last year, primarily due to the acquisition of five additional KFC stores in February 2021, the effect of additional store openings, and solid same store sales growth (up 5.2 % for the half year).

Actual 26 weeks 30 June 2021 Actual 26 weeks 30 June 2020 Change ($) Change (%)
Sales ($Am)
114.8 94.4 +20.4 +21.6
Store EBITDA ($Am) 15.2 11.3 +4.0 +35.3
EBITDA as a % of Sales 13.3 11.9
Store Numbers 76 65

Australian operations continue to face challenges with COVID-19 lockdowns. These restrictions have adversely impacted dine-in sales across the network and many of the mall and in-line city store sales are operating below pre-COVID-19 levels. During the initial COVID-19 lockdown restrictions the Australian business successfully expanded home delivery services and generated further growth in KFC mobile ordering. Both initiatives continue to drive strong sales growth through these channels. With continued investment in existing stores in the portfolio and a particular emphasis on driving workplace safety, operational excellence and digital innovation that enhances customer experience the business has succeeded in mitigating some of the impact of the current COVID-19 restrictions.

Store EBITDA margins of $A15.2 million (13.3% of sales) were up $A4.0 million or 35.3% on last year. Although store EBITDA is up on last year this is primarily due to the increase in sales from store acquisitions and new store openings. There remain underlying cost challenges from COVID-19 as well as initial set up costs of operating Taco Bell as we look to scale the business.
Store numbers continue to grow through both new builds and acquisitions. Five KFC stores were acquired in North Sydney early in the half year and one new Taco Bell opened in Green Square Sydney. This store produced record opening day transactions this year for the entire Asia Pacific region. Four more new Taco Bells are scheduled to open by the end of the year. Two Taco Bell and three KFC stores also opened in 2H 2020.

Hawaii Operations

Total sales in Hawaii for the period were $US72.7 million with store level EBITDA of $US11.6 million (15.8% of sales).
In $NZ terms the Hawaiian operations contributed $NZ101.0 million in revenues, $NZ16.0 million in EBITDA and an operating profit (excluding the effect of NZ IFRS 16) of $NZ19.3 million for the period. This result includes $11.4 million ($US8.1 million) in relation to the PPP loan drawn down at the onset of the COVID-19 pandemic last year, that was forgiven in June 2021.

Actual 26 weeks 30 June 2021 Actual 26 weeks 30 June 2020 Change ($) Change (%)
Sales ($USm)
72.7 68.7 +3.9 +5.7
Store EBITDA ($USm) 11.6 10.2 +1.4 +14.0
EBITDA as a % of Sales 15.8 14.8
Store Numbers 73 75

Reported sales are up $US3.9 million with same store sales up 9.9%. Both Taco Bell and Pizza Hut have shown growth on 1H 2020.
Pizza Hut’s resurgence in sales and profitability experienced last year has continued into 2021. As Hawaii struggles through the ongoing pandemic, customer loyalty to a reliable and long-established brand that offers product value has helped to maintain sales momentum. This has been reinforced by enhanced delivery and customer ordering capability with Pizza Hut’s web orders now accounting for more than 60% of total orders taken.

While Pizza Hut’s sales flourished in 2020, Taco Bell’s sales were stagnant under Hawaii’s initial “stay at home” restrictions instituted in early 2020. Sales have subsequently resurged in 2021 with the recovery in tourism arising from Hawaii opening up its economy. Increased deliveries, largely through third party aggregators and digital sales through Taco Bell’s mobile ordering platform also played a large role in sales growth in 2021. Prior to the pandemic, Taco Bell had no presence in the delivery market and nominal digital sales.

Overall store numbers in Hawaii are down by two from 1H 2020 following the closure of three stores late last year as part of the strategy to close some legacy dine-in restaurants. During the past six months one new Pizza Hut store has opened in Pahoa.

California Operations

Total sales in California for the period were $US55.2 million with store level EBITDA of $US9.1 million (16.5% of sales).
In $NZ terms the Californian operations contributed $NZ77.3 million in revenues, $NZ12.7 million in EBITDA and an operating profit (excluding the effect of NZ IFRS 16) of $NZ4.0 million for the period. These results were above expectations at the time of completion of the California acquisition in September 2020.

Actual 26 weeks 30 June 2021 Actual 26 weeks 30 June 2020 Change ($) Change (%)
Sales ($USm)
55.2 n/a n/a n/a
Store EBITDA ($USm) 9.1 n/a n/a n/a
EBITDA as a % of Sales 16.5 n/a
Store Numbers 69 n/a

The second quarter saw record sales levels in California thanks to the launch of the new KFC Chicken Sandwich, coupled with the third round of Federal stimulus and a relaxation in COVID-19 pandemic restrictions. During June, California relaxed many of the pandemic trading restrictions allowing dining rooms to reopen.

Store numbers have remained constant at the acquisition level of 69 stores. One additional KFC store was acquired from an existing franchisee just after balance date.

Corporate & Other

General and administration (G&A) costs were $24.3 million, an increase of $1.6 million on 1H 2020, largely as a result of inclusion of the California division costs. G&A as a % of total revenue was 4.3% which is much closer to the traditional run rate of 4.0% of revenues. This is a reduction from 5.7% in the prior year due to the increase in revenue and the impact of COVID-19 on the 1H 2020 results.

Depreciation charges of $18.8 million for the half year were $3.1 million higher than the prior year. The increase is from the California division charges ($2.1 million) and the continued high level of new store builds and store refurbishments. Depreciation of leased assets is also up $4.9 million to $18.7 million with new leases increasing the right of use asset depreciation.
Financing costs of $17.6 million were up $3.5 million on prior year primarily due to an increase in lease interest of $3.4 million resulting from both new leases and existing leases being extended. Bank interest costs were $3.4 million, $0.2 million lower than prior year with increased debt levels off-set by lower interest rates.

Tax expense was $9.4 million, up $5.4 million due to the higher earnings. The effective tax rate is 21.5%, down from 26.3% last year due to the lower relative level of assessable income in the Hawaii division with the PPP loan forgiveness.

Other Expenses

Other expenses for the half year totalled $1.9 million, an increase of $0.2 million on prior year. This year’s costs included acquisition costs (Australia and California) of $0.7 million and initial one-off costs associated with a new company-wide ERP system ($1.2 million) being introduced. A further $2-3 million is expected to be spent on this project over the balance of this financial year. The entire project is expected to cost in excess of $7 million and will be largely expensed.

PPP Loan

In March 2020 during the onset of the COVID-19 pandemic the Hawaiian operations received $US8.1 million as a Government loan under the Paycheck Protection Program (a US Government assistance package offered to US businesses affected by the pandemic). In June 2021, the US government approved converting the PPP loan to a government grant. This resulted in $11.4 million in Other Income being recognised in the Consolidated Statement of Comprehensive Income.
NZ IFRS 16

The impact of NZ IFRS 16 on the Group accounts for the half year is a reduction of $4.5 million on after tax operating earnings (1H 2020 impact: $2.8 million).

The Consolidated Statement of Financial Position has right of use assets of $537.8 million, up $26.0 million since December 2020 due to the inclusion of the five newly acquired stores in Australia, various other new stores being opened and lease renewals. Lease liabilities of $623.8 million are also up by $33.4 million reflecting the increase in future lease commitments.
Statements of Cash Flow and Financial Position

Bank debt at the end of the half year was down to $222.3 million compared to $235.6 million at the previous year end. As at 30 June 2021, the Group had bank debt facilities totalling $NZ357.0 million available. Cash and cash equivalents decreased by $8.5 million during the period resulting in net debt reducing by $4.8 million to $195.1 million over the half year.

Operating cash flows were $62.4 million, up $24.5 million on 1H 2020 which is a direct reflection of the strong improvement in trading results vs the prior half year and the added benefit from the California acquisition. Operating cash flows in 1H 2020 also included $22.1 million from the New Zealand wage subsidy.

Net investing cash outflows at $53.2 million, versus $23.9 million in 1H 2020, include the acquisition of stores in Australia for $25.3 million. The underlying spend on new stores as well as refurbishing stores throughout the network is also up by $5.6 million.
COVID-19

The company continues to face challenges in relation to the ongoing COVID-19 pandemic including increased operating costs, continued trading restrictions in some markets and ongoing lockdowns in Australia and on 18 August New Zealand. However, there have been opportunities with increased focus on takeout and delivery channels which have helped produce strong results for this half year. Directors acknowledge the continuing efforts of all staff in helping to deliver such a strong result in what remains challenging circumstances.

Outlook

Despite the impact of COVID-19, store numbers are expected to continue to grow in the second half. New store roll outs for both the KFC and Taco Bell brands will continue in New Zealand and Australia. The Hawaiian market will see another new Taco Bell completed, together with continuing scrape and rebuild refurbishments delivering significant sales growth. A new store development programme is under way in California, with up to three new KFC stores targeted for opening before year end.
The overall business continues to deliver solid results across all geographic markets and this strong performance has carried over into the second half of the year. However, whilst current trading remains strong across all divisions, the prevailing uncertainties with COVID-19, particularly in the Australian and most recently the New Zealand markets make it difficult to provide firm profit guidance.


Authorised by:

Russel Creedy Grant Ellis
CEO CFO
Phone: 525 8710 Phone: 525 8710
ENDS

[Rawz]

Result looks good. To be honest I really don't know due to the trading of the Californian operations.

Sometimes I invest purely based on past track record and management capability. Ill read the annual report each year then that's about it to be fair. It's not a complicated business or model they run. Sell chicken, taco's and pizza. Buy old run down franchises and modernize them.

Anyone follow this more closely and care to share their thoughts?

[Pocket_Eights]

Result looks good. To be honest I really don't know due to the trading of the Californian operations.

Sometimes I invest purely based on past track record and management capability. Ill read the annual report each year then that's about it to be fair. It's not a complicated business or model they run. Sell chicken, taco's and pizza. Buy old run down franchises and modernize them.

Anyone follow this more closely and care to share their thoughts?



I used to follow this quite closely up until the big sell off - It's a good and easy business to understand. With the rest of the country out in L3, should see the surge in KFC sales to offset closure in Auckland.

[ScrappyO]

Bit Annoying that pak n save can sell fast food in Auckland under level 4.

https://www.nzherald.co.nz/lifestyle/covid-19-coronavirus-delta-outbreak-fried-chicken-causing-queues-inside-paknsave/MTISBKLJSA5DNUSPOUQU7LM7QE/

(Don't hold any RBD)

[peat]

Particularly strong sales in KFC
pg 05 interim report.

THey aint seen nothin yet.

[Rawz]

RBD down again today.

10% off its 52 week high.

Thought RBD would be a fairly good stock to hold during inflationary times or hard times? Bucket of KFC at home instead of taking the family to a restaurant

[BlackPeter]

RBD down again today.

10% off its 52 week high.

Thought RBD would be a fairly good stock to hold during inflationary times or hard times? Bucket of KFC at home instead of taking the family to a restaurant

Sure - some people will always pay money to eat lots of unhealthy fatty food, but then - did you check what growth rates are already baked into the current SP?

Maybe markets realizing that the pool for new customers might getting smaller? Existing customer pool might shrink as well - if you look at their target market - that's the people most likely to be severely impacted by Covid (overweight, unfit, unhealthy). Lower growth rates equal lower SP for a "growth" company. Easy as that.

[LaserEyeKiwi]

RBD does have a rather high P/E ratio, sort of odd for the fundamentals. I like the company and it’s direction, but seems a tad overvalued.

[winner69]

RBD does have a rather high P/E ratio, sort of odd for the fundamentals. I like the company and it’s direction, but seems a tad overvalued.

RBD has always been ‘a tad overvalued’ ……even when I bought heaps sub $1 some 12 or so years ago ……still haven’t closed that trade out yet

But never topped up because it was ‘a tad overvalued’ when I thought I might do so.

Percentage wise I’ve made more out of greasy chicken than retirement villages …always laughs at that when I remember that

[BlackPeter]

...

Percentage wise I’ve made more out of greasy chicken than retirement villages …always laughs at that when I remember that

Sure, but possibly reflects more on the qualities of the trader rather than the qualities of the respective stock or the qualities of the product they are selling?

One of my best returns came from Wynyard shares ... but I would not draw any particular conclusions from that on the quality of the company or its products :p ;

[LaserEyeKiwi]

RBD has always been ‘a tad overvalued’ ……even when I bought heaps sub $1 some 12 or so years ago ……still haven’t closed that trade out yet

But never topped up because it was ‘a tad overvalued’ when I thought I might do so.

Percentage wise I’ve made more out of greasy chicken than retirement villages …always laughs at that when I remember that

Well I guess with a well run company and a solid growth history, an argument can indeed be made that its worth paying a premium for.

[Sideshow Bob]

Restaurant Brands Q4 Sales Announcement - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/386490)

Restaurant Brands’ total sales for the year ended 31 December 2021 were $1,068.2 million, an increase of $175.9 million (19.7%) from 2020. Approximately $100 million of the increase arose from an additional eight months trading this year from the California acquisition. Same store sales were strong despite the adverse impact of the continued COVID-19 crisis.

Restaurant Brands responded strongly to COVID-19’s continuing impact on the business in all markets, despite the challenging trading environment, government-mandated restrictions and changes in consumer behaviour. As a result the company achieved its long-standing goal of $1 billion in annual sales, with solid foundations for further sales growth in all four regions in place.

For the fourth quarter of the financial year (three months to 31 December 2021) total sales were $284.0 million, an increase of $14.9 million (5.5%) on the equivalent period last year. All regions had positive same store growth despite the ongoing impact of COVID-19.

Company owned store numbers were up by 11 on the equivalent period last year to 359, primarily from the acquisition of five KFC stores in Sydney earlier in the year and the ongoing builds of new Taco Bell stores in Australia and New Zealand. This was partly offset by the sale of several New Zealand Pizza Hut stores to independent franchisees.

New Zealand
Full year sales for New Zealand were $461.1 million, an increase of 12.4%, primarily from strong same store sales growth of 9.1%. It is estimated that the Government-mandated full store closures resulted in lost sales of $26 million in 2021 and $40 million in 2020.
Fourth quarter total sales for New Zealand were $126.2 million, an increase of 5.3% on the equivalent period last year, with Carl’s Jr. and Pizza Hut performing very strongly.

Store numbers increased by four during the quarter to 137, with the opening of three new Taco Bell stores (Dunedin, Rotorua and Sylvia Park – Auckland) and a new KFC store also in Sylvia Park. In addition two Carl’s Jr. stores were converted to a KFC (Avondale) and a Taco Bell (Auckland Airport).

Australia
Full year sales for Australia were $A230.0 million ($NZ244.1 million), an increase of 13.6% in total, primarily due to new stores and an increase of 1.4% on a same store basis (local currency).

Fourth quarter sales for Australia were $A62.2 million ($NZ65.5 million), an increase of 12.9%. On a same store basis sales were up 1.3% (local currency), with mall and in-line city stores continuing to be adversely impacted by COVID-19.

Store numbers increased by two during the quarter to 79, with the opening of two Taco Bell stores in Dee Why and Orange.
 
Hawaii
Full year sales in Hawaii were $US146.3 million ($NZ206.5 million), an increase of 5.0% on a total basis and 9.1% on a same store basis (local currency). Sales in $NZ terms are lower due to the appreciation of the New Zealand dollar against the US dollar.

Fourth quarter sales were $US36.6 million ($NZ52.7 million). This was an increase of 7.9% on a same store basis (local currency). Taco Bell showed strong growth from the ongoing removal of COVID-19 restrictions and Pizza Hut continues to respond well to the increased demand for home delivery.
Store numbers remained unchanged during the quarter at 73.

California
California full year sales were $US110.3 million ($NZ156.5 million) which were above expectations at acquisition. Prior year to date comparisons are for four months of trading following the acquisition of the California business in September 2020.

Fourth quarter sales were $US27.4 million ($NZ39.5 million), an increase of 2.5% on the on the equivalent period last year in total and up 2.2% on a same store basis (local currency).

Store numbers during the quarter increased by one to 70 with the acquisition of a KFC store in central Los Angeles from an independent franchisee.

Annual Trading Results
The company will release its annual trading results for the year ended 31 December 2021 on 28 February 2022.

[winner69]

Cool graphic in BusinessDesk showing how badly NZX50 stocks have done in January ... plots each stock

Restuarant Brands is only one that's UP .... isn't that cool .... greasy chicken wins again

https://businessdesk.co.nz/article/markets/bear-tracking-every-nzx50-companys-2022-performance

[Sideshow Bob]

Still going strong.....


Restaurant Brands Announces Annual Profit Result - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/388021)

$NZm Dec 2021 Dec 2020 Change ($) Change (%)

Total Sales 1,068.2 892.4 +175.8 +19.7

Net Profit After Tax 51.9 30.6 +21.3 +69.3

Key Points
• Our billion dollar sales target has been achieved with total sales for the year of $1,068.2 million, up against the previous year, with full year positive same store sales growth across all four of our operating divisions.
• Reported net profit after tax of $51.9 million for the year was up $21.3 million on the last year, despite the ongoing adverse impact of COVID-19.
• Combined store EBITDA (pre NZ IFRS 16) for the period was $172.7 million, up 17.2% on the previous year.
• Total store numbers increased by 11 to 359 including the acquisition of five stores in Australia and two stores in California.
• The Taco Bell brand, launched in New Zealand and Australia (New South Wales) in late 2019, has continued to grow with 18 stores now successfully operating in these markets.
• Directors have declared a dividend of 32.0 cents per share, payable on 22 April to all shareholders on the register as at 8 April. The dividend will be paid fully imputed to NZ tax resident holders.

[LaserEyeKiwi]

Would love to invest in this company, but the valuation multiple is just too damn high. Congrats to anyone who managed to buy on the 2020 Dip!

[Grimy]

I bought in many years ago (against the advice of my advisor) in the mid-90 cents. Then the calls for 'fat-tax' and curbs to fast food retailers became louder and louder. I guess I got a bit worried and sold in the high $2.00s.
One of my poorer investment decisions (but not the worst!), but seemed right at the time.....
Also liked the free shareholder voucher once a year. Do they still do that?

[BlackPeter]

Nasty looking downtrend confirmed with the cross of death in mid January.

Just wondering whether it really does not matter that the regular consumption of their products makes many of their customers fat and unhealthy ...?

But probably it is just the rising interest rates and the dropping real estate prices which make punters feeling sick as well?

No worries ... another fatty chicken with large fries and an extra large coke will solve the misery.

[Rawz]

I had some KFC goodness the other day. Juicy, tender, crispy skin and well priced!

With the cost of living crisis a lot of the usual restaurant outings might have to be replaced by a box of the colonel's finest?

[Muse]

I had some KFC goodness the other day. Juicy, tender, crispy skin and well priced!

With the cost of living crisis a lot of the usual restaurant outings might have to be replaced by a box of the colonel's finest?

did you get a Double Down?

Or even better, TWO double downs?
lol

[nztx]

did you get a Double Down?

Or even better, TWO double downs?
lol


Better keep up those habits and then some so RBD keeps being inclined to spit out more growing dividends ;)

[bull....]

KFC NZ will join Australia in replacing lettuce with cabbage as fast food joints struggle to source the leafy vegetable around the country.

https://www.nzherald.co.nz/nz/lett-uce-apologise-kfc-nz-takes-lettuce-off-burgers/P7IIFZ5QK5TUUTQGCRXU6B6LOQ/

[winner69]

Think this is a profit warning

Half year npat 14m-16m v 23m normalised last year …they say

COVID-19 continues to affect Restaurant Brands’ business operations, with high case numbers resulting in staffing issues for the business as well as its contractors and suppliers.

Worldwide inflationary pressures have resulted in the company experiencing significant cost inflation across all regions. The company has implemented price increases where possible in response to increased costs.



http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/RBD/395951/375378.pdf

[bull....]

massive drop in profit , that inflation is killing them. cant keep increasing prices as there customer base wont like that

[winner69]

RBD highlights what inflation can do to profits

Sales up 8.4% ....pretty good in circumstances

Costs/Expenses up 10% .... they say inflation etc

Means NPAT down 30% (this years margin 2.6% v 4.2% v pcp

Other retailers in same boat?

[percy]

RBD highlights what inflation can do to profits

Sales up 8.4% ....pretty good in circumstances

Costs/Expenses up 10% .... they say inflation etc

Means NPAT down 30% (this years margin 2.6% v 4.2% v pcp

Other retailers in same boat?
Yes really hurts retailers especially low margin high volume retailers.
Our Russell has been through it all before,so I expect this is a hiccup in RBD's strong growth trajectory.

[winner69]

Yes really hurts retailers especially low margin high volume retailers.
Our Russell has been through it all before,so I expect this is a hiccup in RBD's strong growth trajectory.

Hey percy .... Snoopy will be after you for giving Russel that extra l

Been CEO for 15 years now ....done well has our Russel

Just as well Ted showed Vicki Salmon the door back then and let Russel have a go. I loved the SMH headline back then 'Salmon off menu at Restaurant Brands' and started the story with 'gone by lunch time'

[percy]

I well remember that.
Also remember Arthur Lim having RBD as his top pick year after year when he presented for Macquaries.
But it never performed until Russell took the helm.
Think he was their CFO before that.

[Ggcc]

Yes really hurts retailers especially low margin high volume retailers.
Our Russell has been through it all before,so I expect this is a hiccup in RBD's strong growth trajectory.
Margins will be increasing as they have no choice. in the next few months the price of cooking oils will increase by projected 30-40%, power by 5-10%, packaging by another 30-40%, or if they can get packaging, products unavailable in general, staff wages and commercial cleaning products which have risen quickly.

It’s grim and customer will need to pay or have no takeaways or restaurants. At McDonald’s you get 6 chicken nuggets for $7.30 now (I know they are not part of restaurant brands). You can buy a whole bag for $9 at supermarket if and when available.

[Rawz]

Not good on the pricing point as a consumer. BlackPeter will be disappointed, he loves his KFC lol. I joke. It’s not good for you, but is delicious.

I thought RBD would perform well during this inflationary environment. Like people would swap the $200 restaurant bill for a $40 KFC bucket bill.

At least sales increased. RBD margins will return to long run avg in time. Good company ay

[bull....]

the almighty domino's just announced results why good they say the new yr has started with a slowdown in sales.
must be the $5 pizza's now $7 pizza's.
people cant afford them anymore

[Sideshow Bob]

Restaurant Brands Half Year Financial Results 2022 - NZX, New Zealand’s Exchange (https://www.nzx.com/announcements/397782)

Key Highlights

($NZm) 1H 2022 1H 2021 Change ($) Change (%)
Total Group sales 584.9 540.6 +44.3 +8.2
Group NPAT (reported) 15.3 34.5 -19.2 -55.7

• Total Group sales for the six months to 30 June 2022 (1H 2022) were $584.9 million, up $44.3 million on the previous half year (1H 2021). Total sales growth was assisted by the inclusion of 17 additional stores and a stronger US dollar.
• Net Profit after Tax for 1H 2022 was $15.3 million (12.25 cents per share), down $19.2 million on 1H 2021. Worldwide inflationary pressures resulted in significant cost increases across all regions. Also, the prior period result included recognition of $11.4 million of loan forgiveness under the US Paycheck Protection Program (PPP).
• Brand EBITDA before G&A was down $3.7 million to $84.3 million. This is a reflection of the significant inflationary pressures facing the company in all markets. This was partially offset by the strong sales and, in particular, a very good overall result for the Hawaii division.

Group Operating Results
Restaurant Brands New Zealand Limited (RBD) has earned a Group Net Profit after Tax (NPAT) of $15.3 million for the six months ended 30 June 2022 (1H 2022). This is down $19.2 million on the last half-year’s reported result. The company continues to face cost inflation pressures across all markets but is mitigating the impact of these by implementing cost savings and taking price increases where possible. However the extent of cost inflation has meant that the opportunity to pass input costs on in the short term has been limited, with consequent short term adverse profit impacts.

RBD continues to face challenges from COVID-19 with resultant staff shortages hampering operations across all divisions and in some cases forcing reduced operating hours during the period.

Comparisons at a reported profit level are distorted by the recognition of $11.4 million ($US8.1 million) in the PPP loan that was forgiven during 1H 2021. After adjusting for the PPP loan, the underlying NPAT for 1H 2021 would be $23.1 million. This underlying decrease for 1H 2022 of $7.8 million reflects the effect of inflation as well as continued trading disruptions relating to COVID-19.

Total store sales hit a new high of $584.9 million, up $44.3 million or 8.2% on 1H 2021. Sales across all regions were up on 1H 2021 due to 17 additional stores and the strengthened US dollar.

Combined brand EBITDA at $84.3 million was down $3.7 million (4.2%) on 1H 2021, with the impact of cost inflation pressures only being partially off-set by strong sales growth over the current period.

Restaurant Brands’ store numbers now total 367, up 17 from 1H 2021. This is primarily driven by new store builds, including 11 new Taco Bell stores across NZ and Australia. There are now 138 RBD-owned stores in New Zealand, 81 stores in Australia, 74 in Hawaii, and 74 in California.

New Zealand Operations

New Zealand store sales were $251.8 million, up $12.5 million or 5.2% on 1H 2021. KFC sales remain strong and Taco Bell sales have grown $6.9 million from 1H 2021. Whilst down from historic highs of 1H 2021, same store sales were up 1.4% for 1H 2022, despite the adverse impact of COVID-19 related staff shortages which required many stores to reduce operating hours and/or operate with reduced capacity. The second quarter of 1H 2022 saw same store sales increase by 3.2%.

EBITDA was $40.6 million, a $2.5 million or 5.7% decrease on 1H 2021 with significant cost pressures, partially off-set by the strong store sales performance. EBITDA margin at 16.1% was down on prior year reflecting the effect of the cost pressures and the mix of less profitable Taco Bell brand sales as this business continues to build.

1H2022 1H2021 Change ($) Change (%)
Store sales ($NZm) 251.8 239.3 +12.5 +5.2
EBITDA ($NZm) 40.6 43.1 -2.5 -5.7
EBITDA as a % of Sales 16.1 18.0
Store Numbers 138 132

1H 2022 saw the successful introduction of a number of new products into the market, with Hot & Crispy Boneless Chicken (KFC) and Detroit Pizza (Pizza Hut) delivering sales growth. Carl’s Jr. continues to perform well. An e-commerce web site has been launched for Taco Bell as the focus on building a digital offering and improving delivery service continues.

The Pizza Hut business in New Zealand continues to grow strongly, not only from RBD’s own stores, but also from the 101 stores operated by independent franchisees under a Master Franchise Agreement with the company. Two new stores were opened in the first half with a similar number anticipated by the end of the year.

Operating profit for the NZ division (excluding the effect of NZ IFRS 16) was $22.7 million (down 20.8%). Inflation has had a significant impact on ingredient and input costs and continues to do so. In addition, labour shortages relating to the COVID-19 pandemic have significantly impacted the hospitality industry in New Zealand. This has disrupted the ability to operate at full trading hours across all stores and channels. The situation was particularly challenging during the first quarter of 2022 and, despite improvement during the second quarter, staff shortages remain an ongoing issue with high numbers of unfilled vacancies.

Whilst restricted availability of building materials and store equipment have slowed store development, new store builds continued with one KFC outlet in Whangarei and one Taco Bell outlet at Cuba Mall, Wellington opened during 1H 2022. Despite continued development challenges an additional three Taco Bell stores and two KFC stores are expected to open before the end of the year.

Australia Operations

In $A terms total sales in Australia were $A122.8 million, up $A8.0 million (or 7.0%) on last year, primarily due to the full effect of five additional KFC stores purchased during 1H 2021, the effect of additional store openings, and solid same store sales growth (up 3.4% for the half year).

In $NZ terms the Australian business contributed total sales of $NZ133.5 million (up 8.5%), a store EBITDA of $NZ14.2 million (down 13.3%) and operating profit (excluding the effect of NZ IFRS 16) of $NZ1.4 million (down 74.5%).

1H2022 1H2021 Change ($) Change (%)
Sales ($Am) 122.8 114.8 +8.0 +7.0
Store EBITDA ($Am) 13.0 15.2 -2.2 -14.5
EBITDA as a % of Sales 10.6 13.3
Store Numbers 81 76

Sales results in the second quarter have continued to see year on year improvement, with strongest recovery in both the CBD and mall stores. These had experienced the greatest adverse impact from
COVID-19 in 2020 and 2021. The launch of Uber Eats delivery service throughout the KFC network in June is expected to contribute to further sales growth into 2H 2022.

Store EBITDA margins of $A13.0 million (10.6% of sales) were down $A2.2 million or 14.5% on last year. The Australian business was negatively impacted during the early stages of the year with the escalation of COVID-19 cases impacting both restaurant staff availability and all major chicken suppliers. This contributed to reduced operating hours and store closures due to lack of staff availability and temporary chicken supply shortages.

The business continues to experience major cost pressures with escalating inflation levels driven by ongoing supply chain disruptions and increased freight and other input costs. The floods in northern and some western parts of New South Wales resulted in the temporary closure of a number of stores and has significantly impacted the agricultural sector further impacting supply availability.

The Australian business has continued to invest in the growth of Taco Bell, with the opening of two new stores in 1H 2022.

Hawaii Operations

Total sales in Hawaii for the period were $US76.0 million with store level EBITDA of $US13.7 million (18.0% of sales).
In $NZ terms the Hawaiian operations contributed $NZ115.1 million in revenues, $NZ20.8 million in EBITDA and an operating profit (excluding the effect of NZ IFRS 16) of $NZ11.2 million for the period, down $8.2 million on 1H 2021.

However the 1H 2021 result included other revenue of $11.4 million ($US8.1 million) in relation to the PPP loan drawn down at the onset of the COVID-19 pandemic in 2020, that was forgiven in June 2021. When normalised for the PPP loan forgiveness, operating profit (excluding the effect of NZ IFRS 16) for 1H 2022 was $3.3 million up on 1H 2021.

1H2022 1H2021 Change ($) Change (%)
Sales ($USm) 76.0 72.7 +3.3 +4.5
Store EBITDA ($USm) 13.7 11.6 +2.1 +17.6
EBITDA as a % of Sales 18.0 15.8
Store Numbers 74 73

Reported sales are up $US3.3 million with same store sales up 2.9%. Taco Bell sales increased significantly over 1H 2021 as the brand returned to pre-COVID-19 trading levels.

The Taco Bell Mexican Pizza was so successful that ingredients ran out across the US and required the promotion to finish ahead of schedule. It will be repeated during 2H 2022 and is expected to again drive strong sales for Taco Bell. Pizza Hut is also looking to roll out a new “Melts” product range which is expected to have a positive impact on the lunch time sales segment.

EBITDA margin as a % of sales is up from 15.8% to 18.0% (largely as a result of increased levels of Taco Bell sales in the overall sales mix) Store staffing challenges arising from COVID-19 continue to impact the business with stores having to operate to reduced trading hours on some occasions. The division also continues to face significant cost pressures, including a further increase in the minimum wage to take effect from October 2022.

Overall store numbers in Hawaii are up by one from 1H 2021 with the opening of one new Taco Bell store in April 2022 which is performing above expectations. A further Taco Bell store is expected to open in January 2023.

California Operations

Total sales in California were $US55.8million, up $US0.6m on last year off the back of three new store openings and the acquisition of three additional KFC stores, offset by a same store sales decrease of 3.0%.

In $NZ terms the Californian operations contributed $NZ84.5 million in revenues, $NZ8.8 million in EBITDA and an operating profit (excluding the effect of NZ IFRS 16) of $NZ0.4 million for the period.

1H2022 1H2021 Change ($) Change (%)
Sales ($USm) 55.8 55.2 +0.6 +1.0
Store EBITDA ($USm) 5.8 9.1 -3.3 -36.3
EBITDA as a % of Sales 10.4 16.5
Store Numbers 74 69

The division rolled over high sales in 2021, driven by strong Government stimulus payments. Consequently same store sales fell by 3.0%. A steep rise in the cost of ingredients has affected the business and price increases have been implemented in response. However, as with all divisions these need to be balanced against competitive pressures and the contraction of consumer purchasing power. Additionally, the cost of labour increased during 1H 2022 with staff shortages and increased overtime as teams stretched to cover COVID-19 related absences.

As a result, store EBITDA of $US5.8 million was down $US3.3 million on last year with EBITDA as % of sales of 10.4% vs 16.5% in 2021.

California store numbers grew by five through new builds and acquisition to 74 total stores, up from 69 stores in 1H 2021. Three new KFC stores were opened in 2022 over the span of six weeks in San Bernardino, Perris and Barstow. The opening day at KFC Barstow was one of the largest opening days for a KFC outlet in the United States. Perris and Barstow were among the first innovative ‘Next Generation’ KFC stores to open in the US market. The three new stores mark the first new store openings for the California division post-acquisition with more new stores scheduled to open later this year. One acquisition was completed in Desert Hot Springs consolidating our strong presence in the greater Palm Springs area.

Corporate & Other

General and administration (G&A) costs were $27.5 million, an increase of $3.1 million on 1H 2021. G&A as a % of total revenue was 4.5%, slightly up on 1H 2021 (4.3%). As with much of the business, this was primarily driven by cost inflation over the period along with the filling of vacancies that had remained open during the COVID-19 pandemic.

Depreciation charges of $21.5 million for the half year were $2.8 million higher than the prior year. The increase is due to the continued high level of new store builds and store refurbishments. Depreciation of leased assets is also up $1.2 million to $19.9 million with new leases increasing the associated right of use asset depreciation.
Financing costs of $19.8 million were up $2.2 million on prior year primarily due to an increase in lease interest of $1.8 million due to both new leases and existing leases being extended. Bank interest costs were $3.7 million, $0.3 million higher than prior year due to increased debt levels.

Tax expense was $5.3 million, down $4.2 million due to the lower earnings. The effective tax rate is 25.6%, up from 21.5% last year due to the higher relative level of assessable income in the Hawaii division.

Other Income / Expenses

Other income / expenses for the half year totalled $2.7 million, an increase of $0.8 million versus 1H 2021. This year’s costs included the initial one-off costs associated with the implementation of new company-wide financial systems ($3.4 million), partially off-set by an acquisition gain of $0.9 million. This gain is as a result of the net assets included in the acquisition of a California store being higher than the net consideration paid.

NZ IFRS 16
The impact of NZ IFRS 16 on the Group accounts for the half year is a reduction of $4.8 million on after-tax operating earnings (1H 2021 impact: $4.5 million).
The Consolidated Statement of Financial Position has right of use lease assets of $623.8 million, up $47.3 million since December 2021 due to the inclusion of the newly acquired store in California, various other new stores being opened and lease renewals. Lease liabilities of $725.3 million are also up by $56.5 million reflecting the increase in future lease commitments.

Statements of Cash Flow and Financial Position

Bank debt at the end of the half year was $290.6 million compared to $246.9 million at the previous year end. As at 30 June 2022, the Group had bank debt facilities totalling $NZ381.8 million available. Cash and cash equivalents decreased by $12.0 million during the period with net debt increasing by $55.7 million to $257.5 million over the half year. This is due to continued commitment to a strong capital investment programme and the payment of a $39.9 million dividend.
The company remains comfortably within all banking covenants with a Net Debt:EBITDA ratio of 2.1:1.

Operating cash flows were $48.4 million, down $14.0 million on 1H 2021. This is a direct reflection of the inflationary impact on trading margins combined with $2.0 million additional interest paid versus the prior half year.

Net investing cash outflows at $34.0 million, were $19.2 million lower than the $53.2 million in 1H 2021. 1H 2021 included the acquisition of stores in Australia for $25.3 million. The underlying spend on new stores as well as refurbishing stores throughout the network was up by $6.1 million.
A dividend of $39.9 million (32 cents per share) was paid to shareholders in April.

Outlook

Store numbers are expected to continue to grow in the second half despite continued building constraints. New store roll outs for both the KFC and Taco Bell brands will continue in New Zealand and Australia. The Hawaiian market will see another new Taco Bell completed in early 2023. The new store development programme is well under way in California, with up to three new KFC stores targeted for opening before year end.

The overall business continues to remain solid across all geographic markets as reflected in the strong sales performance, which is expected to carry over into the second half of the year. Trading results in recent months have also improved due to various actions taken to lessen the inflationary effect on the business.

The current results have been adversely affected by worldwide inflationary and COVID-19 pressures, the company continues work to mitigate their impact and improve profitability over 2H 2022. It is expected that cost inflation and margins will stabilise over the second half – however, it is not anticipated that the impact of a challenging 1H 2022 will be fully reversed by year end.

The continued impact of inflation as well as the rolling issues with COVID-19 makes it difficult to provide firm profit guidance; however the reported net profit after taxation for the 2022 year is expected to be in the range of $32-37 million.

[nztx]

What ? .. No Dividend this time Boss ? ;)

Probably a darn price hike instead .. :)

[BlackPeter]

Well, what can one say?

Fatty food supplier with below average results and uncertain outlook ...

doubt this announcment will be a trend changer.

[LaserEyeKiwi]

Oof - even after its large share price fall this year, still pretty meager returns for a company with currently a $1 Billion+ market cap.

[nztx]

But still one of the handful which hasn't been caned in today's sea of red :)

[Sideshow Bob]

But still one of the handful which hasn't been caned in today's sea of red :)

Took a while to digest....... now down 35c/4.1% today......

Close to being down 50% in the last year ;)

[bull....]

see inghams said in there results they are going to be raising chicken prices to help off set there cost increases. :scared: higher kfc prices coming .... i dont like it like that

[LaserEyeKiwi]

Potential bad news for Restaurant brands California operations:

https://www.axios.com/2022/09/01/california-fast-food-bill-marks-pivotal-moment-for-low-wage-workers

Minimum wage for fast food workers in California may rise from $15.61 to as much as $22 per hour.

[ralph]

Potential bad news for Restaurant brands California operations:

https://www.axios.com/2022/09/01/california-fast-food-bill-marks-pivotal-moment-for-low-wage-workers

Minimum wage for fast food workers in California may rise from $15.61 to as much as $22 per hour.

That's actually a good sign as these minimum wage workers across all sectors will have more moolah to spend on fast foods

[LaserEyeKiwi]

That's actually a good sign as these minimum wage workers across all sectors will have more moolah to spend on fast foods

That’s quite the reach - a business whose biggest cost is labour seeing a potential 40% increase in minimum wage is not going to be good news for that business.

[bull....]

getting out before the carnage to come ?

Restaurant Brands announces retirement of its CEO And CFO
https://www.nzx.com/announcements/398364

[winner69]

Hey Snoops me old mate - our Russel and Grant both 'retiring' soon

Bit shocking eh - the end of an era (or more than an era)

Hope they've not decided that now is not 'peak performance' for the group and time to get out.

But you never know ... some young spark (maybe from Yum) could come in and make RBD even greater

[BlackPeter]

Hey Snoops me old mate - our Russel and Grant both 'retiring' soon

Bit shocking eh - the end of an era (or more than an era)

Hope they've not decided that now is not 'peak performance' for the group and time to get out.

But you never know ... some young spark (maybe from Yum) could come in and make RBD even greater

Well, yes - but probably only after tidying the ship, emptying the closets ... and getting the share price back to solid ground.

Maybe they even start at some stage to sell food which is good for people :) ?

[Rawz]

Wow that’s a surprise! Not good news.

[LaserEyeKiwi]

California just passed the fast food minimum wage fair pay act. Only thing to be decided now is how high the fast food minimum wage will be set at.

https://www.axios.com/2022/09/05/newsom-california-law-low-wage-workers

[bull....]

trying to save costs eh

Disgusting’: Kiwis concerned after change to KFC potato and gravy leaves ‘plastic’ taste
https://www.nzherald.co.nz/lifestyle/disgusting-kiwis-concerned-after-change-to-kfc-potato-and-gravy-leaves-plastic-taste/MD2DV366WVEDJD3UOPNKE5QAGU/

[BlackPeter]

trying to save costs eh

Disgusting’: Kiwis concerned after change to KFC potato and gravy leaves ‘plastic’ taste
https://www.nzherald.co.nz/lifestyle/disgusting-kiwis-concerned-after-change-to-kfc-potato-and-gravy-leaves-plastic-taste/MD2DV366WVEDJD3UOPNKE5QAGU/

Isn't the amount of micro plastic in our food increasing everywhere? RBD just being proactive and training their clientel ... good stuff!

[bull....]

Isn't the amount of micro plastic in our food increasing everywhere? RBD just being proactive and training their clientel ... good stuff!

quality of food in general is getting ****ter

[Sideshow Bob]

https://www.nzx.com/announcements/401123

Restaurant Brands Sales up 32.3% with Roll Over of COVID-19 Lockdowns

Restaurant Brands’ total sales for the third quarter to 30 September 2022 increased to $322.2 million (up 32.3% over the equivalent period last year), as sales recovered from the impacts of the 2021 COVID-19 restrictions in New Zealand and Australia.

Worldwide inflationary pressures have continued from last quarter, with the company still experiencing significant cost inflation across all regions. The company continues to implement price increases where possible in response to these increased costs.

Total year to date sales reached $907.1 million (an increase of 15.7% on the prior year). Total sales were supported by the inclusion of 20 new stores (to 372 stores in total), lower levels of COVID-19 disruption and the strengthening US and Australian dollars over the prior year.

New Zealand

Third quarter sales for New Zealand were $137.6 million, up 43.9% in total and 2.2% on a same store basis.

Prior year trading was impacted by Government-mandated trading restrictions. Adjusting the prior year sales to account for an estimated $26 million of sales lost due to COVID-19 restrictions, sales increased by 13.1% during the quarter.

All brands showed sales growth, with staff isolation requirements reducing as COVID-19 restrictions continue to be eased and overall case numbers drop.
Total year to date sales were $389.4 million, an increase of 16.3% on the prior year and 1.6% on a same store basis.

Store numbers increased by two during the quarter to 140 stores, following the opening of new Taco Bell stores in Botany, Auckland and near Christchurch Airport.
Australia

Australia’s sales for the third quarter were $A65.5 million ($NZ73.1 million), an increase of 23.6% in total (local currency). Total sales growth over the prior year is distorted by the impact of COVID-19 Government restrictions imposed during 2021.

Same store sales were up 10.4% (local currency). Mall and in-line inner city store sales continued to recover towards pre-COVID-19 sales levels.

Total year to date sales were $A188.4 million ($NZ206.5 million). This is an increase of 12.3% on a total basis on the prior year and 5.6% on a same store basis.
Store numbers increased by one during the quarter to 82 following the opening of a new Taco Bell store in Chatswood, Sydney.

Hawaii
Sales for the third quarter in Hawaii were $US39.9 million ($NZ65.1 million), showing growth of 7.7% in total and 2.6% on a same store basis (local currency).
Hawaii trading continues to be strong, with sales growing past pre-pandemic levels. The full reintroduction of the Taco Bell Mexican Pizza Taco has exceeded sales expectations and is driving sales growth into the fourth quarter.

Total year to date sales were $US115.9 million ($NZ180.3 million), an increase of 5.7% on a total basis on the prior year and 2.8% on a same store basis.
Store numbers increased by one to 75 stores during the quarter with the opening of a new Taco Bell store in Kilauea.

California

California’s sales in the third quarter were $US28.5 million ($NZ46.4 million), an increase of 3.0% on a total basis but a decrease of 3.3% on a same store basis (local currency).

Same store sales have reduced on the prior year in the absence of Government stimulus payments and with Californian consumer spending falling in the face of high inflation levels.

Total year to date sales were $US84.3 million ($NZ130.9 million), an increase of 1.7% on a total basis on the prior year but a decrease of 3.0% on a same store basis.
Store numbers increased by one during the quarter to 75 stores following the opening of a new KFC store in Ridgecrest.

[Rawz]

No mention of margins?

At half year margins were under pressure

[theace]

What's causing the downtrend? 5yr lows.

[nztx]

No mention of margins?

At half year margins were under pressure

Yep exactly - cost pressures will be chewing into Margins and bottom line
to the extent they aren't recoverable or offset by margins on recovered turnover levels

Was the last period's Dividend a one off flash in the pan as new economic factors
impact results going forward ?

[bull....]

collins kfc australia had there results yesterday

The rising cost of food such as the chicken, lettuce and oil needed for KFC’s products has eaten into the company’s revenue, with the difference in costs not expected to be covered until 2025.

https://www.news.com.au/lifestyle/food/eat/kfc-flags-price-hike-as-company-battles-rising-food-costs/news-story/041f3d68384e1596d57049091951267f

[Rawz]

Yeah a bucket of chicken with sides for the family is like $60 these days.

Its getting up there. Pizza, burgers or fish n chips cheaper option

[nztx]

A good SP fall yesterday, with further today

SP graph for past year shows a steady slide from north of $15 a year ago ( - 50% +)

Offset by what could be a one off dividend in April 2022 along the way

A potential candidate for minorities to be taken out by the South American controlling interests at these levels ?

Lets face it - with inflationary issues, bottom line may well be evaporating into each order that goes out the doors ;)