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
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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
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.
Some free advertising for RBD
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.
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.
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'.
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
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
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.
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?
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.
Seems that KFC brings out the feral in us:
https://www.nzherald.co.nz/business/...ectid=12328367
KFC had to close early as ran-out-of-chicken and McDonalds ran out of hamburgers ............
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?
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/...ectid=12338376
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 Profit Reference 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 $4.532m AR2019(2) p55: $6.076m - $1.547m = $4.532m add Other Income and Expenses (*) $4.0m AR2019(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
'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...ons-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
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
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
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%
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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
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'.
EOFY2016 Change 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
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!
FY2015 FY2016 FY2017 FY2018 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 $21.457m NM $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 yrs 0.9 yrs 0 years 4.4 yrs 3.7 yrs 3.3 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-websit...496/314595.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
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 16 Adjustments Post 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
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 EBITDA Historical EBIT Reference As Reported $86.547m $59.013m AR2019(2) page 80 Note 15 (IFRS 16 effects removed) Normalised for full year ( x12/10) {A} $103.856m $70.816m Market Multiple {B} 10.9 18 RBD Commissioned Independent Advisors Report p32 Net Debt @ 31-12-2019 (Total Debt - Cash) {C} $119.361m $119.361m AR2019(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!
The is an interesting article here:
https://www.qsrmagazine.com/news/kfc...-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-foo...et-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/2020/7/1/213101...emic-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
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
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-foo...ges-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
Another opportunity to add stores?
https://www.cnbc.com/2020/08/17/pizz...ranchisee.html
News released today that the Californian deal is going ahead, with no mention of a price renegotiation.
http://nzx-prod-s7fsd7f98s.s3-websit...995/329793.pdf
The following is an article on how YUM Brands, the master franchise holder for KFC, has navigated Covid-19
https://www.qsrmagazine.com/restaura...rength-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
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.
Becoming junk stock 42 trades for 567 shares & 24c movement
The other brands joining CarlsJr on Uber Eats. Just a trial so far for the additions.
https://www.scoop.co.nz/stories/BU20...ew-zealand.htm
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/...YXTFZLKC4MJ2A/
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
Thoughts on the sales update?
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
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
'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
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.
EOFY2016 Change 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
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!
FY2017 FY2018 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 years 4.4 yrs 3.7 yrs 2.9 yrs 5.3 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
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 16 Adjustments Post NZ IFRS 16 Method 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 / CalculatedEBITDA 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
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 EBITDA Historical EBIT Reference As Calculated {A} $106.785m $69.958m My post 2650 Market Multiple {B} 10.9 18 RBD Commissioned Independent Advisors Report p32 Net Bank Debt @ 31-12-2020: (Total Bank Debt - Cash) {C} $200.732m $200.732m AC2020 '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!
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
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
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 EBITDA Historical EBIT Reference 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} 10.9 18 RBD Commissioned Independent Advisors Report p32 Net Bank Debt @ 31-12-2020: (Total Bank Debt - Cash) {C} $200.732m $200.732m AC2020 '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!
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 Margins Pre Covid 19 period Post Covid 19 Period Reference My Food Bag 4.1% 7.2% HY2019(30-09-2019) cf HY2020(30-09-2020) Burger Fuel Group 5.2% 3.7% HY2019(30-09-2019) cf HY2020(30-09-2020) Restaurant Brands 4.5% 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
Territory EBITDA Margin New Zealand 18.5% Australia 13.7% Hawaii 15.6% California 16.4%
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
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 :):
Was going to post something about YUM brands loving the way KFC going in the US ....but link.wont work
Taco Bell hits Chch......even with rent-a-crowd!
Taco Bell opens in Christchurch | Otago Daily Times Online News (odt.co.nz)
Not a fan of Taco Bell but love my RBD shares. A good compounder
Recession proof too, better than a power company there.
Sigh - just removing the usual duplicate. Thanks for poor server performance.
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
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-...cts-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?
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.
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.
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 .. ;)
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 .
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
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,.
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
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.. ;)
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
Time to sell soon I think but I understand those who would like to hold longer.
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.
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.
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?channe...9985d7f3a55e,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
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
RBD Q2 Sales Announcement - NZX, New Zealand’s Exchange
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
Onwards and upwards....!!
Restaurant Brands Half Year Financial Results 2021 - NZX, New Zealand’s Exchange
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
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?
Bit Annoying that pak n save can sell fast food in Auckland under level 4.
https://www.nzherald.co.nz/lifestyle...USPOUQU7LM7QE/
(Don't hold any RBD)
Particularly strong sales in KFC
pg 05 interim report.
THey aint seen nothin yet.